jessica evaluation study - implementing jessica instruments in

Transcription

JESSICA EVALUATION STUDY
- IMPLEMENTING JESSICA
INSTRUMENTS IN SLOVAKIA
FINAL REPORT
June 2010
This document has been produced with the financial assistance of
the European Union. The views expressed herein can in no way be
taken to reflect the official opinion of the European Union.
LIST OF ABBREVIATIONS
ABBREVIATION DG
ECB
EE
EIB
ERDF
EU
HF
JEREMIE
Meaning
Directorate General
Energy Centre Bratislava
Energy efficiency
European Investment Bank
European Regional Development Fund
European Union
Holding Fund
Joint European Resources for Micro to Medium
Enterprises Initiative JESSICA
Ltd.
Joint European Support for Sustainable Investment
in City Areas Limited Company
MCRD
Ministry of Construction and Regional Development of the Slovak Republic
RES
Renewable energy sources
SHDF
State Housing Development Fund
URBION
Organization managed by the Ministry of Construction and
Regional Development responsible for territorial planning
ROP
Regional Operational Programme
OPBR
Operational Programme Bratislava Region
OPEOperational Programme Environment
SLOVSEFF
Slovak Energy Efficiency and Renewable Energy Finance Facility
- a New Instrument to Finance Sustainable Energy granted
by The European Bank for Reconstruction and Development
(EBRD) in cooperation with the Ministry of Economy
REA
Regional Energy Agency
UDF
Urban Development Fund
SGDB
Slovak Guarantee and Development Bank
UNDP
United Nations Development Programme
This Report is submitted for the project JESSICA Evaluation Study for
Slovakia under contract No.CC3433/PO32799 for the provision of services
between the European Investment Bank (EIB) and Obviam Regio, o.z.
JESSICA EVALUATION STUDY - FINAL REPORT SLOVAKIA
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TABLE OF CONTENTS
EXECUTIVE SUMMARY.........................................................................................................................................................................5
Recommendations...................................................................................................................................................................................6
1. INTRODUCTION..................................................................................................................................................................................8
1.1. Study targets.........................................................................................................................................................................8
1.2. Methodology with respect to the terms of reference...........................................................................................10
1.3. Summary of the country overview..............................................................................................................................11
1.4. Outline of the structural funds in Slovakia................................................................................................................12
1.5. Outputs for set up of the financial instrument - JESSICA in the Slovak Republic (Intervention Areas).14
2. REVIEW OF ERDF AND MARKET FOR URBAN REGENERATION PROCESS (SUPPLY SIDE ANALYSIS)..............20
2.1. Added value of the implementation of the JESSICA financial instrument in the SR....................................20
2.2. Most relevant Operational Programs to the financial instrument JESSICA in SR..........................................22
2.3. Further public sources taking into consideration the area of refurbishment of the housing stock........26
2.4. Financing through commercial instruments............................................................................................................29
3. IDENTIFICATION OF POSSIBLE MARKET GAPS (DEMAND SIDE ANALYSIS)..............................................................35
3.1. Housing Stock.....................................................................................................................................................................35
3.2. Urban regeneration sector.............................................................................................................................................42
3.3. Integrated Energy Strategies........................................................................................................................................ 46
4. SWOT ANALYSIS.............................................................................................................................................................................. 48
5. IMPLEMENTATION STRUCTURE...............................................................................................................................................50
5.1. Option 1: Urban Development Fund created on the basis of a public procurement procedure.............52
5.2. Option 2: Urban Development Fund created on the basis of a direct assignment to a national
institution....................................................................................................................................................................................54
5.3. Options 3 and 4: UDF(s) created through a Holding Fund under EIB management...................................57
5.4.Summary assessment of the advantages/disadvantages of the individual implementation options...67
6. PROPOSAL OF INVESTMENT STRATEGIES...........................................................................................................................69
6.1. Basic considerations..........................................................................................................................................................69
6.2. Typical projects in the housing sector........................................................................................................................73
6.3. Typical projects in the public sector............................................................................................................................81
6.4. Projects of integrated energy strategies....................................................................................................................82
7. PILOT PROJECT / CASE STUDIES................................................................................................................................................87
7.1. Housing sector....................................................................................................................................................................87
7.2. Public buildings..................................................................................................................................................................91
8. ROADMAP OF THE IMPLEMENTATION OF THE ACTION PLAN OF JESSICA IN THE SLOVAK REPUBLIC....95
9. CONCLUSION AND RECOMENDATIONS..............................................................................................................................101
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LIST OF TABLES
Table 1 Strategic Priorities of the NSRF 2007 – 2013...................................................................................................13
Table 2 Comparison of intervention areas....................................................................................................................15
Table 3 Comparison of Operational Programms........................................................................................................ 22
Table 4 Existing instruments in the area of housing refurbishment...................................................................... 26
Table 5 State Housing Development Fund supported flats in the last 5 years.................................................... 27
Table 6 Support through SGDB - guarantees.............................................................................................................. 28
Table 7 Overview of existing products of commercial banks (April 2010)............................................................ 30
Table 8 Overview of products granted by construction savings (April 2010).......................................................31
Table 9 Flats in residential buildings............................................................................................................................. 36
Table 10 Age structure of flats in residential buildings..............................................................................................37
Table 11 Housing supported from SHDF and subsidies from MCRD SR................................................................ 39
Table 12 Calculation of market potential..................................................................................................................... 40
Table 13 Annual Number of Flats Refurbishments through competitive products........................................... 40
Table 14 Annual Number of Flats Refurbishments.....................................................................................................41
Table 15 Reconstructions of public buildings............................................................................................................. 43
Table 16 Average heat consumption for heating according to the purpose of use........................................... 44
Table 17 Annual heat consumption for heating according to the purpose of use............................................. 45
Table 18 Comparative schemes of individual models:.............................................................................................. 68
Table 19 Investment costs of the individual variants in a typical residential building.......................................75
Table 20 Energy savings for the individual variants...................................................................................................76
Table 21 Assessment of the impact of product on the financial situation of the applicant............................. 77
Table 22 Overall results of implementation of variants B and C within financial scenario 18M...................... 79
Table 23 Overall results of implementation of variants B and C within financial scenario 36M...................... 80
Table 24 Average cubature of public buildings according to the purpose of use...............................................81
Table 25 Consumption of natural gas - buildings...................................................................................................... 92
Table 26 Share of division of electrical energy according to the consumption locality.................................... 93
Table 27 Investment costs of proposed measures..................................................................................................... 93
Table 28 Results of the proposed measures................................................................................................................ 94
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EXECUTIVE SUMMARY
This Final Report describes the significant potential for the implementation of the financial engineering instrument JESSICA in Slovakia and analyzes possible implementation solutions. In particular, the
analysis centers on:
• Availability of funds for investment through JESSICA, based on
analysis of relevant operational programs of EU structural funds
in Slovakia and of other potential sources of funding;
• Financial instruments currently available to support urban development in Slovakia;
• Needs for urban development investments, especially renovation of residential buildings, energy efficiency of public buildings
and integrated urban energy strategies (demand-side analysis).
The analysis of the rationale for JESSICA concludes with a SWOT analysis. Four possible implementation structures are analyzed in relation to various scenarios of availability of financial resources; implementation Options 1 and 2 concern a direct contractual relationship
between managing authorities and an Urban Development Fund (focused on refurbishment of housing), while Options 3 and 4 include
the creation of a Holding Fund which would subsequently invest into
one or more Urban Development Funds focusing on various areas
of investment in urban development (housing refurbishment, energy efficiency in public buildings, brownfield revitalization, integrated
energy strategies, etc.). The study also outlines possible investment
strategies of JESSICA funds in Slovakia, provides case studies of
possible typical projects and of a real-life pilot project. Finally, the
study suggests an action plan describing the proposed implementation actions step-by-step.
Our analysis of the demand and supply sides described and quantified the market gap in financing of urban development, including
in the housing sector, showing a considerable potential for a JESSICA-type financial engineering mechanism.1 Concerning the availability of financial resources, at this stage, the most likely sources of
a contribution to JESSICA funds in Slovakia seem to be the Regional
Operational Program (ROP) and the Operational Program Bratislava
1
As regards financing of housing refurbishment, a market gap in the amount of 9.3 billion
euro is estimated. In addition, a gap of 2.3 billion EUR was identified in terms of financing projects of
refurbishment of public buildings. The potential need for investments in complex revitalization of urban areas and integrated energy projects is theoretically without limitations. The utilization of innovative financial instruments could to a large extent contribute to the improvement of the availability
of financing of the target projects.
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Region (OPBR). Discussions with the representatives of the managing
authorities of these OPs indicated the availability of 18 mil euro for investment through the JESSICA mechanism; these allocations are preassigned for investment in support of refurbishment of the housing
stock. Additional financial resources for JESSICA funds could come
about through a transfer of resources obtained by the state through carbon emission trade, although at present it is difficult to assess
to what extent such a transfer might be realistic. Besides European
or Government sources, a top-up of the financial allocation into the
JESSICA mechanism could be achieved through participation of private capital and/or international financial institutions. Our dialogue
with private banks showed, however, that the possibility and magnitude of such co-investments into a JESSICA structure is difficult to forecast, mainly because most private banks already offer specialized
financial products for the support of housing refurbishment. Commercial banks seem most interested in entering other areas of urban
development, such as rehabilitation of public buildings, regeneration
of brownfields and realization of integrated urban energy strategies.
In this context, it rests with the competent authorities of the Slovak
Republic to decide whether and to what extent additional resources
would be allocated to JESSICA in order to trigger the interest of the
banking and private sector in further supporting projects in the above areas.
Recommendations
As the potential allocation of EUR 18 million from ROP and OPBR is
rather low for the starting up of a sustainable investment instrument,
which should have a strategic role in the long term, we recommend
to further examine the following possibilities:
• Reallocation into a JESSICA fund of resources from other Operational Programs - OP Environment and the OP Competitiveness
and Economic Growth in the period of 2010 – 2013.
• Transfer of financial resources from the emissions sold by the Slovak Republic and/or from the expected revenues from emission
permits which the Slovak Republic has for sale at the moment or
are to be traded in 2012. Investment in energy efficiency is one of
the main areas of application of the JESSICA instrument.
• Utilize the possibility within OPs of investing up to 4% of the national ERDF allocation in energy efficiency improvements in the
housing stock (as recently allowed by Article 7 of Regulation
1080/2006). Undertake these investments in the housing stock in
a repayable way through the financial instrument JESSICA instead
of providing non-repayable financial contributions. We recom-
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mend grant financing only for buildings where the need for supporting social inclusion is large and where commercial financing
is not viable.
• Closer cooperation with the commercial banks on the activation
of the financial instrument JESSICA and on a long-term adjustment of the financial instrument in such a way that an optimal
leverage effect would be achieved. The JESSICA instrument could
be used to attract private financing into segments of urban development which will remain underfinanced without public sector
support (e.g. integrated energy strategies, brownfield revitalization etc.).
For the implementation of the financial instrument JESSICA we recommend to utilize one of the options involving a Holding Fund (Options 3 or 4) as this creates greater potential for attraction of private
investors (leverage effect), leads to a transfer of know-how and enables to support a broader range of urban development investments.
Establishment of a HF is also strategic from the point of view of longterm utilization of the JESSICA instrument in Slovakia.
As concerns the thematic areas of investment, we recommend to
examine the possibilities of realizing investments through the JESSICA mechanism also in other areas than refurbishment of the housing stock. The latter represents an important contribution to urban
development; however it is not the sole area of urban development,
which needs attention and a higher level of investments. We recommend swift and close cooperation with commercial banks on the formulation of a final investment strategy for JESSICA in Slovakia and
the definition of areas of future investments. The characteristics of
the investment strategy should be such that JESSICA investments
would be ”opening the doors“ of new prospective investment areas
rather than adding a “drop to an ocean” of similar financial products.
We would like to conclude with a point which became more and
more obvious during the whole process of working on the Evaluation
Study: the Study itself was an accelerator of changes and discussions
with the managing authorities, other public institutions and the private sector, all of which are starting to be aware of both the potential
and the complexity of implementing the financial instrument JESSICA in the Slovak Republic.
In addition, the study opened public discussions on JESSICA instrument and its use in Slovakia. Moreover, it also assisted in introducing
the JESSICA mechanism into national strategic policy documents.
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1. INTRODUCTION
1.1. Study targets
As stated in the terms of reference, the Evaluation Study “Implementing JESSICA instruments in Slovakia” could be seen as a useful tool
for all stakeholders within the context of regional development in
Slovakia. The main objective of the study has been to analyze the
current situation in financing of integrated urban renewal and regeneration projects and to define the potential and the constraints for
implementing JESSICA as a mechanism for using allocations of Operational Programs for repayable investments in urban development.
This involved, first of all, the identification of key players/stakeholders
in the field of urban development and a review of development needs, available resources and existing priorities. The expectation from
the study was that it would thoroughly assess all possibilities and
alternatives of the possible implementation of JESSICA in the Slovak conditions and propose the optimal implementation solution.
Through discussions within the Steering Committee, it was decided
that the main thematic focus of the study should be on energy efficiency in housing and in the public sector. The terms of reference
of the Evaluation Study establish five objectives, which form a logical sequence: 1. Facilitation of a consultative process on JESSICA implementation, 2. Analysis of the rationale and value added of JESSICA implementation 3. Proposal of an organizational architecture for
JESSICA implementation, 4. Proposal of an investment strategy for an
Urban Development Fund (UDF), 5. Identification of the implementation requirements (action plan). To solve these tasks, it was necessary
to identify major challenges in urban development in the Slovak Republic, approach they key actors on the supply side as well as consider the perspective of potential beneficiaries.
JESSICA stands for Joint European Support for Sustainable Investment in City Areas. This initiative is being developed by the
European Commission and the European Investment Bank (EIB),
in collaboration with the Council of Europe Development Bank
(CEB). Under new rules of EU structural funds in the programming period 2007-2013, Member States are being given the option of using some of their EU grant funding to make repayable investments in projects forming part of integrated plans for
sustainable urban development. These investments may take
the form of equity, loans and/or guarantees. JESSICA is not
a new source of funding for Member States, but rather a new
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way of using existing allocations of funding from the Structural
Funds to support urban development projects.
JESSICA is designed for using part of EU structural funds resources
to support projects which generate financial returns and are part of
an integrated plan for sustainable urban development. The aim is to
support the realization of urban development projects which are eligible under a given operational program, bring socio-economic benefits and, owing to their revenue-generating character, cannot or
are not desirable to be funded through grants. Such projects can be
funded through “revolving funds” (Holding Funds and/or Urban Development Funds) which, thanks to the repayable character of the
funding provided, may become long-term strategic investment instruments for city development. This means that a sustainability element will be present both in the quality of development projects
and in their funding method (resources provided for investment into
a project are subsequently repaid back into the fund).
Individual projects receive financial support from an Urban Development Fund. The UDF can be set up either directly by the Managing
Authority of the respective structural funds operational program or
this Managing Authority can use the services of a JESSICA holding
fund for the purposes of setting up one or more UDFs. UDFs invest
into projects by way of loans, guarantees or equity. The basic implementation structure is captured in the scheme below:
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1.2. Methodology with respect to the terms of reference
As outlined in the Inception Report, the following were the main activities through which relevant data was obtained:
• Own analyses elaborated by Obviam Regio and the Energy Centre Bratislava;
• Analysis of sustainable refurbishment of High-Rise Residential
Buildings and Restructuring of Surrounding Areas in Europe; (PRC
Bouwcentrum International, The Netherlands 2005)
• Analysis of available studies on the JESSICA instrument that have
already been completed;
• Discussions with representatives of cities, commercial banks and
managing authorities;
• Consultations with representatives of the EIB and the members of
the Steering Committee.
The first milestone was the analysis of the National Strategic Reference Framework for the period 2007 -2013, an analysis of the legal status for implementation of innovative financial instruments and the
analysis of relevant documents in the field of urban development.
The purpose of the analysis was to identify legal challenges, opportunities, restrictions and concerns related to the implementation of
the JESSICA initiative in the Slovak Republic.
During this phase the Regional Operational Program (ROP) and the
Operational Program Bratislava Region (OPBR) were analyzed. Both
programs represent the strongest involvement of ERDF resources for
intervention in urban regeneration in general and, more particularly,
in energy efficiency and renewable energy investments in housing
infrastructure. The main focus should be put on Priority Axis 4 Regeneration of Settlements of the ROP, and in the OPBR on the Measure
1.1., “Integrated Projects for Renovation of Towns and Rural Areas”.
We have also analyzed other operational programs within the National Strategic Reference Framework, namely Operational Program Environment and Operational Program Competitiveness and Economic
Growth. Both are interconnected with the subject of energy efficiency and may be of relevance in the future.
In Slovakia, a discussion about the 4% eligibility window within the
ERDF for energy efficiency investments in the housing stock has not
started yet. This study could be seen as a perspective tool for opening this discussion. JESSICA could later serve as a vehicle for practical utilization of these funds for investments in energy efficiency and
renewable energy for existing housing.
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The analysis covered also the existing public investment programs;
mainly the State Housing Development Fund (National Revolving
Fund), Program of Housing Development (National Grant Program),
Governmental Insulation Program of Residential Buildings (0% interest Revolving Fund – newly established), and other programs provided mainly by the commercial banks, e.g. the Slovak Guarantee and
Development Bank, Building Saving Companies, SLOVSEFF (EBRD
program). The above mentioned programs can be considered to be
the “supply side” of financing. On the demand side, in addition to the
analysis of the “conservative” target areas and target stakeholders
(housing associations, municipalities etc.), potential clients could be
found also among Regional Energy Agencies, which are newly established organizations under the Intelligent Energy Europe initiative.
The demand and supply side analysis allowed us to identify and quantify the existence of a market gap in providing financing for urban
development projects, especially in the field of energy efficiency and
the need for JESSICA type financial engineering mechanisms. Strengths, weaknesses, opportunities and threats of the JESSICA mechanism were identified based on the results of this investigation.
1.3. Summary of the country overview
Spatial development and the settlement system development in
Slovakia is described in the Slovak Spatial Development Perspective
2001 which is a spatial planning document of nation-wide applicability, adopted by the Slovak Government in 2001. The Concept characterizes different settlement structures and the basic principles of
their development. The binding part of the Concept was issued as
a decree of the Slovak Republic in 2002 outlining, inter alia, the hierarchy of cores of settlement and development axes as the basic elements of the settlement structure.
The relationship between economic development and position factors of municipalities and whole regions or their parts is indisputable. Spatial conditions and position factors are becoming the decisive
criteria for locating economic activities and often belong to the most
important criteria for the development dynamism of the respective
territory. They are in particular metropolitan regions, cities and urban
areas/centers which represent the key potential for state and regional
competitiveness. The most significant urbanized areas are of decisive
importance in competitiveness and development, mainly regarding
creation of innovations.
Small and medium-sized towns play an important role as regional
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and national nodes. By means of purpose-oriented regional policy
supporting the development of those towns, the decrease of regional disparities and the stabilization of population can be developed
in less developed regions. In certain specific functions, small and medium towns may become important actors in the international and
cross-border context. The advantage of small and medium-sized
towns as centers of smaller regions may might the ability to recover,
and frequently, high efficiency with the use of synergy effects when
creating “settlement clusters” allowing them to compete in even
more significant areas.
Recent situation in the system of settlement structure of Slovakia is
characterized by the following key facts:
• The network of settlements is highly fragmented – there are 2,891
municipalities (in 2004) with small municipalities (less than 1,000
inhabitants) representing 67% of that number and giving home
to 16% of the population;
• Although urban population dominates in the total population
(55.5%), the share of the rural population is still very important
(44.5%);
• As to the number of settlements, most towns (more than 90% of
all urban settlements) are of medium or small size with less than
50 thousand inhabitants. In terms of the number of population,
larger medium and big cities (above 50 thousand inhabitants) are
more important; giving home to almost 25% of the Slovak population.
1.4. Outline of the structural funds in Slovakia
National Strategic Reference Framework for the period 2007 - 2013
The current Programming period 2007 – 2013 is the first programming period during which the Slovak Republic will be able to draw
from the EU funds in its entire duration. The document known as
the National Strategic Reference Framework for the period 2007
– 2013 (NSRF) provides the baseline for this drawing. This strategic document has been drawn up pursuant to the new regulations
of the European Union (EU) for the Structural Funds and the Cohesion Fund. Within the Convergence target, the financial contributions from the ERDF and ESF funds are primarily focused on the regions, whose gross domestic product per capita during the last
three years before the adoption of the new regulations was less
than 75% of the average of the enlarged EU countries. In the case
of Slovakia it is the entire territory with the exception of the Bratislava region. Areas not falling within the target of Convergence (Bra-
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tislava region, in the case of Slovakia) are eligible to draw financial
support within the target of Regional Competitiveness and Employment. The main objective is to strengthen the competitiveness and
make Bratislava region more attractive through anticipation of economic and social changes and supporting innovations, knowledge-based society, business-spirit, environmental protection and
risk prevention, support for employees and companies adaptability
and development of the labor markets oriented to social inclusion.
The NSRF strategy has been defined in terms of three strategic priorities and their three targets which should be achieved through the
projects financed within the programming period 2007 – 2013:
Table 1 Strategic Priorities of the NSRF 2007 – 2013
Strategic priority
1. Infrastructure and regional availability
2. Knowledge-based economy
3. Human resources
Target of the strategic priority
Increasing the regional density of infrastructure and enhancing the related public services effectiveness
Development of the sustainable economic growth resources
and increase of competitiveness in industry and services
Enhancing employment, increasing the labor force quality for the needs of the knowledge-based economy
and enhancing the social inclusion of risk groups
The Chapter 5.3.7. of NSRF SR 2007 – 2013 is focused on the problem of the coordination within the operational programs and the
contributions from the EIB and other financial tools. The primary information is that the SR on the basis of the analysis and the assessment of all possibilities and impacts, which could be connected with
the commitment of a framework loan, had a negative standpoint to
a possibility of a commitment from a framework loan from the European Investment Bank in the Programming period 2007 – 2013.
Although this situation will probably change, based on discussions
between the EIB and the Ministry of Finance SR, there is a framework
loan expected to substitute the national co financing of SF/CF in the
amount of approx. 1,3 bill euro since 2010. The inclusion of the EIB in
the future programming period may also exist within the initiative
JEREMIE (for a detailed information ref. Annex No. 8 of the NSRF SR
2007 - 2013). The above indicates an intention to utilize the innovative financial tools and repayable forms of financing already in this
programming period 2007 – 2013. However, JESSICA is so far mentioned in the strategic materials only in the long-term context. In
contrast, the JEREMIE instrument is given more concrete focus in the
strategic documents and is at present already getting into the practical phase of implementation.
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1.5. Outputs for set up of the financial instrument JESSICA in the Slovak Republic (Intervention Areas)
An introductory meeting between the Slovak authorities and the
JESSICA Task Force took place in June 2007. During this meeting the
interest of the Slovak authorities in implementing the JESSICA initiative was confirmed. This was particularly the case for Ministry of
Construction and Regional Development, which saw JESSICA as an
interesting opportunity for support of integrated projects, involving
the renewal and regeneration of housing estates (explicitly foreseen
in the Regional Operational Program and the Operational Program
Bratislava Region - for both of which the Ministry is the Managing
Authority.) The possibility to use the existing State Housing Development Fund (“SHDF”) to perform JESSICA Urban Development Fund
functions was mentioned as well.
A meeting between the EIB and the Ministry of Construction and Regional Development took place on 15 December 2008. The purpose
was to identify significant potential for JESSICA in conjunction with
the existing energy efficiency schemes in the Slovak housing sector.
Following this meeting, the EIB received a request from the Minister
of Construction and Regional Development on 20 April 2009, to conduct a JESSICA study with a view to identify opportunities for JESSICA in Slovakia and with the particular emphasis on housing energy
efficiency. In 2009 issues accelerated in this case and the EIB decided
to start preparations on an Evaluation study for JESSICA in the Slovak
Republic.
As it was presented in the Terms of Reference and in discussions
between the members of the Steering Committee, the main focus of
the study should be placed on energy efficiency in the housing sector.
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Financial need (demand analyses)
Based on the executed demand analyses (ref. Chapter 3), we could conclude that in the SR there is sufficient demand after financial sources for refurbishment of residential buildings and
the revitalization of city premises as well as municipal areas.
The market potential consists of:
Table 2 Comparison of intervention areas
Comparison of intervention areas:
Intervention area
Market gap in euro
Refurbishment of flats
Urban regeneration (public buildings!
Integrated projects (minimal expectations)
TOTAL
9 317 (in 2010)
2 399 (in 2010)
1 500 (in 2010)
13 216 (in 2010)
Source: Evaluation study JESSICA, part demand side, 2010
Acceptability of loan financial tools – implanted financial market
In the case of refurbishment of residential buildings, all relevant subjects - apartment owners, Associations of owners of residential and
non residential premises (thereinafter Association of owners) as well
as Management companies have sufficient knowledge of the loan
products offered on the one hand by the State Housing Development Fund (SHDF), and on the other hand also by commercial banks
and building savings institutions. In principle we could conclude that
the majority of the offered products differ only in details and the set
up of products is in majority identical, mainly as concerns the authorized construction interventions in residential buildings. These facts
are a positive sign for the utilization of the JESSICA financial instrument, because the majority of prospective beneficiaries do accept repayable financing for the intended refurbishment of residential buildings.
From the point of view of financing projects of urban regeneration
beyond housing refurbishment, we could conclude that the majority of cities are at the present counting on utilization of non-repayable financial resources from EU structural funds. The inclination towards non-repayable financial instruments is at the present underlined
by the ongoing economic crisis although through proper promotional events it is expected that the different market players will understand the added-value created by revolving instruments, thus
approaching their utilization in a more constructive manner. Moreover, what speaks in favor of introducing financial engineering instruments and products is the fact that the resources from Operational
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Programs of Structural Funds are limited in time and their utilization
is subject to conditions concerning the commitment and de-commitment of resources and the programming/allocation of amounts
into individual priorities and measures. Although contributions made
from operational programs into JESSICA funds would also have to
respect the relevant priorities of these operational programs, the fact
that operational program resources have to be invested from Urban
Development Funds to projects only by the end of 2015 presents an
advantage as compared to the grant system.
Long-term solution
The process of implementation of the JESSICA financial instrument
overtook the Slovak Republic in the mid of the programming period 2007 – 2013, which represents a certain disadvantage for setting
up of the criteria for the financial instrument. It also represents a limitation with regard to availability of allocations in the operational
programs. Even from this point of view, it seems important to look
at the preparation of a start up of the financial tool as a long-term
project, which would bring fruit especially in the new EU programming period from 2014 up to 2020, and an interesting instrument for
possible utilization of additional financial resources, e.g. proceeds of
sales of the emission permits, etc.
Acceptability of project intentions
The refurbishment of residential buildings represents an important
question of public life, taking into consideration the fact that around
50 % of the citizens of the SR live in residential buildings. Focusing
the financial instrument JESSICA initially on refurbishment of residential buildings could be considered appropriate, inter alia because the
definition of repayable JESSICA financial products for revitalization of
urban areas and energy projects in cities could be more complicated. This is evidenced by the fact that although the ROP and OPBR
envisaged support to integrated urban development projects, since
2007 there has been no call for integrated projects within the ROP
and the OPBR. Other barriers to integrated urban investments consist
in complicated ownership structures. From a long-term point of view,
however, the focus of JESSICA on realization of more complex integrated urban development projects would have a greater positive impact on several areas of public life than when focusing monothematically on refurbishment of residential buildings.
Potential sources of funds
Three possibilities exist under the structural funds regulations for fi-
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nancing of interventions in the housing stock with operational program resources:
1. Housing expenditure programmed within the framework of
an integrated urban development approach for areas experiencing or threatened by physical deterioration and social exclusion (on the basis of Article 7(2), point (a) of Regulation 1080/2006).
In determining these areas MS shall take into consideration at least
one of criteria defined by Article 47 of the Implementing Regulation
1828/2006. Furthermore, the following conditions also apply for this
type of intervention:
• This type of investment in housing, counted together with the
type 2 referred to below (marginalized communities) can be undertaken only up to the volume of 3% of the ERDF allocation to
the given OP or 2% of the total ERDF allocation to the Slovak Republic.
• This type of investment in housing can be implemented only in
urban areas.
• Expenditure is eligible only if incurred for:
-- Renovation of common parts (as defined by national rules) in
existing multifamily housing; OR
-- Renovation and change of use of existing buildings owned by
public authorities or NGOs which are being used as housing
designated for low-income households or people with special
needs.
2. Housing expenditure programmed within the framework of
an integrated approach for marginalised communities (on the
basis of Article 7(2), point (b) of Regulation 1080/2006). The following
conditions apply for this type of intervention:
• This type of investment in housing, counted together with the
type 1 referred to above (integrated urban development approach) can be undertaken only up to the volume of 3% of the
ERDF allocation to the given OP or 2% of the total ERDF allocation
to the Slovak Republic.
• This type of investment in housing can be implemented in both
urban and rural areas.
• Interventions are possible in all parts of the house (common, private) and may include the renovation or replacement of existing
housing.
3. Expenditure on energy efficiency improvements and on the
use of renewable energy in existing housing, in support of social
cohesion on the basis of Article 7(1a) of Regulation 1080/2006. The
following conditions apply for this type of intervention:
• Member States shall define categories of eligible housing in national rules, in conformity with Article 56(4) of Regulation (EC) No
1083/2006, in order to support social cohesion.
17 (105)
• This type of investment in housing can be undertaken only up to
the volume of 4% of total ERDF allocation to the Slovak Republic.
• This type of investment in housing can be implemented in both
urban and rural areas.
The abovementioned three possibilities are summarized below:
Possibility for expenditure on housing being eligible under Structural Funds Regulations
Housing expenditure programmed
within the framework of an integrated
urban development approach for areas
experiencing or threatened by physical
deterioration and social exclusion (Article
7(2), point (a) of Regulation 1080/2006)
Housing expenditure programmed
within the framework of an integrated approach for marginalised communities (on the basis of Article 7(2),
point (b) of Regulation 1080/2006)
Expenditure on energy efficiency improvements and on the use of renewable energy in existing housing, in
support of social cohesion (Article
7(1a) of Regulation 1080/2006)
Maximum amount
Expenditure on housing under both possibilities taken together may not exceed 3% of
the ERDF allocation to the given OP or 2% of
the total ERDF allocation to the country.
Max. 4% of the total ERDF allocation for the country.
The Regional Operational Program (ROP) and the Operational Program Bratislava Region (OPBR) in the versions valid as of June 2010
envisage the utilization of only the first possibility (expenditure on
housing within an integrated urban development approach) and
foresee an ERDF allocation of EUR 76 million i.e. 1,2% of total ERDF
allocation for Slovakia. Therefore, from the point of view of the Regulations, there would be space for the utilization of an additional 0.8%
of the ERDF allocation for Slovakia for possibilities 1 or 2 above AND
for the utilization of additional 4% of the total ERDF allocation for expenditure on energy efficiency improvements and on the use of renewable energy in existing housing.
The Managing Authorities of ROP and OPBR have been thinking to
decrease the planned allocation of EUR 76 million for investment in
housing within an integrated urban development approach down to
18 million and to utilize these 18 million through the JESSICA mechanism. However, this and other envisaged revisions of the OPs have
not yet been approved by the Monitoring Committees and are still
subject to discussions.
From our discussions with the Managing Authorities, it seems that
the most likely potential sources of financial allocations into JESSICA
funds are two Operational Programs: the Regional Operational Program (ROP) and the Operational Program Bratislava Region (OPBR).
18 (105)
The total potential allocation, which has been confirmed through
discussions with the representatives of the managing authorities,
is currently 18 million euros. The entire allocation could be utilized
in support of housing refurbishment, as it derives from the relevant
measures supporting the refurbishment of the housing stock. However, on the basis of the above analysis of the possibilities offered by
the Regulation 1080/2006, we would recommend the Central coordination authority to develop an initiative for submitting a proposal
to the Government of the SR for greater utilization of the possibilities
to invest ERDF resources for housing. This could also pave the way to
an efficient and effective utilization of ERDF resources for support of
housing refurbishment through the JESSICA instrument.
Besides resources available in the existing operational programs, an
important source of funds to be potentially allocated for utilization
through the financial instrument JESSICA could be also the additional funds allocated to Slovakia on the basis of the technical adjustment of the financial framework 2007-2013. This adjustment has been
made (on the basis of the Inter-Institutional agreement of 17 May
2006) in light of the divergence between the estimated and actual
GDP for the period 2007-2009 and it means that additional 137,7
million EUR will be available for Slovakia for the years 2011, 2012, and
2013 (see the Commission’s communication COM (2010) 160 final of
16 April 2010). An allocation of some of these additional resources for
utilization in a repayable manner through the JESSICA could help develop this innovative financial instrument at a greater scale.
Another additional financial impulse to the implementation of the
JESSICA mechanism could be an allocation of revenues obtained by
the SR from emission trading. However, at present we cannot assess
the likelihood of a transfer of financial resources from emission sales.
The above European or national budgetary resources contributed to
JESSICA funds could also leverage private co-investment at the fund
level or at the project level. In case of private banks, their interest in
potential financial participation in the JESSICA scheme can be expected mainly outside the area of housing refurbishment, because
virtually every bank already offers to clients its own specialized products for investment in housing refurbishment. It is also for this reason
that a broadening of the focus of investment strategies of JESSICA
funds can be recommended (complex urban regeneration, brownfield revitalization, integrated energy strategies etc.).
19 (105)
2.REVIEW OF ERDF AND MARKET
FOR URBAN REGENERATION
PROCESS (SUPPLY SIDE ANALYSIS)
2.1.Added value of the implementation of the
JESSICA financial instrument in the SR
For a proper set up of the added value of the JESSICA financial instrument in the SR, it is necessary to analyze the Structural Funds, which
are expected to represent the main source of financial contributions
to JESSICA funds. Key areas within the analyses have been operational programs which support projects with the following focus:
1.
2.
3.
4.
Refurbishment of residential buildings
Revitalization of urban areas
Energy effectiveness
Integrated urban development projects
The most important part of operating programmes analysis is
the choice of suitable programmes which could potentially serve as
JESSICA’s financial source tool in the Slovak Republic. For this reason
it is necessary to determine conditions for specific criteria enabling
the comparison of the individual measures and those which seem
the most suitable from the given study conditions point of view.
1. Financing through ERDF - the most suitable financial source for JESSICA is presented by the investments in the tangible and intangible
infrastructure which is the basic condition for the future sources development out of the invested means.
2. Contribution towards urban development – the operating program
should aim at the growth innovation poles representing mainly district cities, cities with district dwelling and the cities with a former
district dwelling. Particularly these subjects represent the most distinguishing contribution towards the city areas development. There
are 82 growth innovation poles in the SR at present.
3. Supported project type, cumulating income potential – primary anticipation for JESSICA‘s financial tool utilisation is the project existence which achieves that income accumulation is used for the granted financial means repayment. From the return on investment point
of view these projects can be divided into three types:
20 (105)
• Projects not generating any income
• Projects generating income
• Projects generating profit (contrary to the previous type, the
project income is sufficient to secure the return on investment).
The projects with the insufficient return on investment (type 1 and
2) will require irretrievable form of financing ( if the applicant is not
willing to bear the loss at his own cost). Projects generating profit can
be implemented even without grant provision, however, only under
the assumption, that the applicant would have disposal of sufficient
means for the project realisation. From the JESSICA initiative point of
view it is possible to consider the projects falling within the categories 2 and 3 as applicable, while the type 3 can be considered as the
most suitable. Projects of type 2 can be implemented through recoverable form only if the applicant is willing to secure the loan with his
own resources.
4. Contribution towards the refurbishment of Housing Stock – Refurbishment of Housing Stock has been defined as the priority during
the mutual discussions between the EIB and the SR, for this reason it
has been included as a priority in the TOR.
5. Contribution towards energy efficiency – energy efficiency has been
defined as a priority during the mutual discussions between the EIB
and the SR, for this reason it has been included as a priority in the
TOR.
6. Knock on effect - the ability to attract a sufficient number of investors, based on the continuity principle even after the completion of
financing by the structural funds.
21 (105)
For a better comparison, all the individual answers are graphically
presented:
X – without relevant impact
ü – unequivocal contribution towards the given criteria
? contribution towards the criteria is questionable, it is unequivocal to be identified
The following operational programmes were excluded from more
detailed analysis on the basis of these criterion:
Education
Employment and Social Inclusion
Health
Research and Development
Informatization of Society
Transport
Technical Assistance
Knock on effect
Contribution to energy effectiveness
Contribution to the
Refurbishment of
the Housing Fund
Type of the supported project
Operational Program
Contribution to
urban development
Financing from ERDF
Table 3 Comparison of Operational Programms
Source: Evaluation study JESSICA, 2010
X
X
X
X
X
X
X
X
X
X
X
X
ü
ü
ü
ü
X
ü
?
ü
ü
X
ü
ü
?
ü
X
X
X
X
X
X
ü
ü
X
X
X
ü
ü
?
ü
X
2.2. Most relevant Operational Programs to
the financial instrument JESSICA in SR
On the basis of their relevance to the assignment, the following
4 Operational Programs have been selected for a more detailed analysis.
Operational Program Environment (OPE)
The Operational Program is focused on the improvement of the environmental status and the rational utilization of sources through
improvement of the environmental infrastructure and on the strengthening of the environmental part of the long-term sustainability of
the SR. The OP has a broad range of applications. The authorized projects are e.g. reclamation of dumps, introduction of separable waste,
waste assessment and others. A possible overlap of the OP with JESSICA is in the case of the Priority Axes 3 „Air Protection and MinimizaJESSICA EVALUATION STUDY - FINAL REPORT SLOVAKIA
22 (105)
tion of Adverse Effects of Climate Change”, which is financed through
the ERDF. Here the main focus is the reduction of the volume of air
pollution. For example following projects types are eligible:
• Change of fuel base to an environmentally more acceptable fuel
• Adaptation of buses to gas fuel; replacement of bus transport by
tram transport,
• Purchase of cleaning technologies (spray tanks, cleaning cars) surface communications (highways, speed roads, roads of 1st and
2nd class and local communications);
• Greening of cities (planting schemes and regeneration of green
separating the residential area from industrial estates, commercial areas or frequent transport corridors, revitalisation of badly
maintained surfaces and their change into parks and green spaces) and tree planting and maintenance schemes.
• Building of intercepting parking, where walking zones will be introduced;
Authorized applicants are higher administration units, municipalities,
legal bodies, entrepreneurial subjects and others. The priority Axes
has a certain contribution towards urban development, but does not
follow energy effectiveness as a primary result of the realization of
the projects. The allocation of 180 mil euro for this Priority Axes 3 is
mainly committed. On the base of the negotiation process between
the OP and the MF SR at present, it is inevitable, with respect to JEREMIE, to take into consideration two facts. The OP Environment shall
adopt the changes in connection with the realization of the financial
scheme and at the present a „reserved“ allocation of 27 mill euro plus
a national co-financing in favor of the JEREMIE initiative. The Axis No.
3 was selected to be the most perspective for the recipients from
small and medium size entrepreneurs.
Operational Program Competitiveness and Economic Growth
The global objective of the Operational Program is to secure a permanent sustainable economic growth and employment. As a priority, the OP is oriented to support of the entrepreneurial environment,
mainly through projects which are introducing innovative tech nologies, raising energy effectiveness, improvement of the quality of tourist traffic and the improvement of marketing of domestic producers
abroad. Two measures within the OP contribute to urban development. These are focused on the reconstruction of public lighting and
on regeneration of brown industrial zones. The innovative potential
of JESSICA could be applied, but taking into consideration the actual
status of committing of financial sources and the implementation of
the JEREMIE instrument, the possibility of their use in JESSICA implementation is not considered to be very realistic.
23 (105)
Regional Operational Program (ROP)
The most important Operational Program from the point of view of
potential allocation of funds for utilization through JESSICA is the Regional Operational Program. The OP is fulfilling all analyzed attributes: focus on urban and regional development, enabling intervention into refurbishment of residential buildings. The OP is financed
by the ERDF; applicants are inter alia municipalities and subjects ensuring the execution of administration in residential buildings. The
authorized projects within the OP are e.g. reconstruction of school
infrastructure, building and reconstruction of social infrastructure, reconstructions of cultural heritage, road infrastructure, integrated projects of complex approach etc. Thematically, these are absolutely in
line with the focus of JESSICA. A common denominator in all projects
is energy effectiveness and regional development. However, many of
the types of projects supported within the ROP do not enable generation of income, which is an obstacle to the utilization of repayable
financing in their implementation and to greater involvement of the
private sector as the return on investment in such projects is not sufficient.
The most important constraint within the utilization of the ROP will
be the amount of the allocation, which could be transferred to JESSICA funds. On the basis of the present contracting level and the indications from the representatives of the Managing Authority, a maximum of 15 million euro could be allocated from the ROP. The most
important priority axis of the ROP for the purpose of this study is the
priority Axis 4 – Regeneration of settlements, part of which is dealing
with Integrated Strategies of Development of Urban Areas. This
Measure will represent the most probable source of funds for the investment through the financial instrument JESSICA. In the version valid as at June 2010, the priority axis 4 of the ROP has an ERDF allocation of 437 million, of which 70 million is planned for refurbishment
of the housing stock.
The present rules of the ROP pose conditions for the realization of
projects in this measure, namely that these have to contribute to territorial cohesion and are subject to a previous approval of an Integrated Strategy.
Operational Program Bratislava Region (OPBR)
The priority of the Operational Program is a universal development
of the area with the goal of improvement of quality of life of the citizens of the Bratislava region in accordance with the principles of sustainable development. The OP in a considerable manner replaces the
24 (105)
possibilities of the other OP, which are excluding the area of Bratislava region as eligible for realization of projects. Eligible subjects are
municipalities and entrepreneurial entities. Relevant projects are investments into settlement regeneration, introduction of innovative
technologies, interventions in regional and city transport, as well as
informatization of the society. Within the program there is an overlap
with JESSICA mainly in the area of support of refurbishment of residential buildings; limitations related to Integrated Strategies are similar as in the case of the ROP. Within this context as well as in the context of the contracting level and based on the indications from the
representatives of the Managing Authority there would be a possibility to utilize maximum 3 million euro for investment through JESSICA
funds. This amount is to be strictly utilized for realization of projects
in the area of the Bratislava region.
25 (105)
2.3. Further public sources taking into consideration
the area of refurbishment of the housing stock.
In the Slovak Republic there are at the moment a variety of tools focused on the support of energy effectiveness in the housing policy.
An overview of the existing instruments is presented in the following
table:
Table 4 Existing instruments in the area of housing refurbishment
Instrument
Provider
Loans from the State Housing Development Fund
Ministry of Construction and Regional
Development SR
Ministry of Construction
and Regional Development SR through
the State Housing
Development Fund
Slovak Guarantee and
Development Bank
Ministry of Economy
SR (Slovak Innovation
and Energy Agency)
EBRD + International Fund from the
Decommissioning of
Bohunice (BIDSF)
Development SR
Development SR
Subsidies (removal of systemic failures)
Governmental Insulation Program
Program of State Bank Guarantees
Program of higher utilization of biomass and solar energy in housing
SLOVSEFF
Regional Operational Program
Operational Program Bratislava Region
Type of
Resources
Loan resources – advantageous interest rate 1% p. a.
Origin of sources
Sources for
2010
State budget
27 000 000 euro
Subsidies
State budget
9 960 000 euro
Loan resources with interest rate 0% p. a.
State budget
At the moment there
are no free allocated
resources for 2010
Issued guarantee
State budget
-
Subsidy
State budget
8 000 000 euro –
overall allocation
of the program
Subsidy in connection
to the offered loan
Sources from the International Fund from Financial resources for
the Decommissioning housing are drained
of Bohunice (BIDSF)
Grant
Structural funds
(ERDF)
70 000 000 euro*
Grant
Structural funds
(ERDF)
6 000 000 euro**
* the sum mentioned in the financial plans 2007 - 2013 in the ROP Program Manual version 2.2. valid as of
22.01.2010, the sum allocated for the support of the priority theme 78 – Infrastructure of housing –
** sum mentioned in the financial plans 2007 - 2013 in the v Program Manual OPBD version 6 valid as of
20.10.2010, the sum allocated for the support of the priority theme 78 – Infrastructure of housing
National Programs
A) National tools for the support of energy efficiency in the housing
policy
• State Housing Development Fund – a loan based tool
26 (105)
• Governmental Insulation Program – a loan based tool (0% interest rate)
• Program of higher utilization of biomass and solar energy in
households – grant tool
• Program of State Bank Guarantees from SGDB
• Subsidies for the elimination of systemic failures – subsidy
B)
•
•
•
European sources for the support of housing policy
Regional Operational Program – structural funds - ERDF
Operational Program Bratislava Region – structural funds - ERDF
SLOVSEFF ( majority of EBRD sources) – loan based tool
The State Housing Development Fund was founded by the National
Council Act No. 124/1996 on State Fund for Housing Development.
The demand for funds from the State fund for Housing Development
is higher than the available funds. The approved 2010 budget of the
SHDF envisaged expenditure for the reconstruction of apartment
houses in the amount of 27 000 000 euro. According to information
published as of 26 January 2010, the Fund received for the action of
reconstruction of apartment houses applications in a cumulative sum
of 29 111 897,97 euro, which is exceeding the approved budget about approx. 2,1 million euro.
Table 5 State Housing Development Fund supported flats in the last 5 years
Budget
2005
2006
2007
2008
2009
Total
U5
U5
U5
U5
U5
GIP
8 298 479,72 €
23 235 743,21 €
33 758 215,49 €
24 895 439,16 €
26 360 226,39 €
71 000 000,00 €
187 548 103,97 €
Number
of appl.
102
152
228
291
507
505
1785
Requested support
26 669 454,95 €
28 297 151,96 €
36 423 255,66 €
57 820 321,32€
115 242 682,22 €
97 897 558,02 €
362 350 424,13 €
Number
of appl.
48
112
193
126
127
346
952
Offered support
8 298 479,72 €
23 018 555,40 €
31 759 901,75 €
24 932 881,90 €
26 299 497,05 €
70 870 807,43 €
185 180 123,25 €
Reconstructed h. u.
1724
4644
8231
6475
7210
14775
43059
Source: State Fund for Housing Development, 2010
Explanations: U5 – Reconstruction of a residential building, GIP – Governmental Insulation Program
Governmental Insulation Program
Provider: Ministry of Construction and Regional Development SR
through the State Housing Development Fund
Budget: the program started on 1 July 2009 with a budget of 71 mill
euro (source: state budget)
Format of aid: non-interest rate loan for up to 15 years
27 (105)
Subject of support: family and residential houses
Slovak Guarantee and Development Bank (SGDB)
The Slovak Guarantee and Development Bank is a state bank offering
direct (loans) and indirect (guarantees) financial instruments mainly
in the segments of the market which are outside primary interest of
the commercial sector. Group of prospective customers of the bank
consists mainly from small and medium enterprises. The bank support is aimed at refurbishment of housing stock too. While comparing bank guarantees on the actual market, the bank provides guarantee for common commercial bank credits/loans with markedly
preferable conditions. Next table shows the development in segment of provided guarantees in the refurbishment of housing stock.
Table 6 Support through SGDB - guarantees
Year
2005
2006
2007
2008
2009
Assumption- 2010
TOTAL
Afforded
Value in €
4 582 656
10 960 206
20 935 201
18 209 653
20 874 646
16 000 000
91 562 361
Number in pcs.
64
89
138
72
91
80
534
SLOVSEFF
The European Bank for Reconstruction and Development (EBRD) in
cooperation with the Ministry of Economy SR has launched the Slovak
Energy Efficiency and Renewable Energy Finance Facility (SLOVSEFF).
In order to establish SLOVSEFF, the EBRD has chosen the following
four participating banks (PBs): Dexia banka Slovensko, a.s., Slovenská
sporiteľňa, a.s., Tatra banka, a.s., Všeobecná úverová banka, a.s.
Loans between euro 20,000 and euro 2,000,000, as well as grants
between 7.5% and 20% of the loan amounts and free technical assistance are available through local banks for private companies and
housing associations implementing energy efficiency and renewable energy projects. A grant support is provided by the Bohunice International Decommissioning and Support Fund (BIDSF) to which the
European Community is the largest contributor, together with Austria, Denmark, France, Ireland, the Netherlands, Spain, Switzerland
and the United Kingdom.
28 (105)
2.4. Financing through commercial instruments
There are more than 20 commercial banks and three building saving
banks in Slovakia at present. The majority of the banking houses offer financial resources for the reconstruction of the housing stock
through specialized loan products. First financial institutions which
started with the financing of the reconstruction of apartment houses were construction banks (in 2000). The commercial banks did not
give enough attention to this type of the segment in the beginning;
the reason was mainly the problematic securing of the offered loans.
Changes started mainly in 2003, when first products of commercial
banks in the area of reconstruction of apartment houses started. One
of the solutions how to minimize the problematic guarantee was the
issue of state obligations through the State Guarantee and Development Bank (the program started in 1999). Whereas the issue of guarantees was a long-term process, the financial institutions have been
forced to search also new paths of loan securing,e.g. through solidarity guarantee of loans, which have been utilized mainly by construction banks. The problem within such type of guarantee is the fact
that the whole risk of non-repayment of the loan is laying on several
owners of the apartments. During couple of years there were certain
changes in the area of this segment and the present situation could
be characterized as follows:
A loan could be offered to a community of owners of apartments
and non-residential spaces, to an apartment cooperative, to a legal
or physical person executing maintenance of the apartments as well
as to a city apartment enterprise. The term of the loans is between 10
to 20 years and the interest rate within commercial loans is in the interval from 4% p.a. up to 7% p.a. depending on the actual situation
of the borrower, whereby the payment of the loan is possible through an annuity form or regressive. The minimum loan amount was approximately at the amount of 6650 euro for one submitted loan. The
biggest problem within financing communities of apartment owners and non-residential spaces and the administrators of the apartments was the securing of the submitted loan. As an appropriate solution was therefore the issuing of the Program of the State Support
of the Reconstruction of the Housing Stock through offering of bank
guarantees to loans through SGDB. Acceptable forms of guarantees
at the present represent mainly bank acceptance, blank bill, notary
memorandum, and affiliate with an obligation (solidary guarantee),
bank guarantees, and assets in the date of maturity – alternate right
for the reconstruction fund, demonetization of the insurance, mortgage of a property. On the base of the own experiences of the banking sector with the housing segment, as well as the competitiveness
29 (105)
environment, gradually profiled specialized banking products, 2010
would probably also be the year of testing of first banking products
for the reconstruction of residential buildings with a minimum form
of guarantee. An overview of conditions within the most frequent offered banking loans in the area of reconstruction of residential buildings is illustrated by the following table:
Table 7 Overview of existing products of commercial banks (April 2010)
Bank
ČSOB
VÚB, a.s.
Product
Value of the loan (min. Maturity
amount –max. amount) in years
Program RENOVO -
Investment loan
Up to 25
Max. 266 000 euro for
one residential building, within administrators without limitations
from 7 000 €, max.
without limit
SLSP, a.s
Investment loan
4 - 20
Tatra banka, a.s.
Financing of the
reconstruction
of a residential building
-
do 20
Dexia banka, a.s.
Deadline loan
Without limitation
Up to 20
OTP Banka
Investment loan
Without limitation
Up to 20
Volksbank, a.s.
Loans for the
reconstruction of the housing stock
Up to 20
minimum 8300 euro
UniCredit Bank
Investment loan
maximum 13 300
euro/ 1 apartment
Up to 20
Security( variable possibilities)
Up to 100 000 euro/
apartment unit – without a guarantee, guarantee of the SGDB
Stand-by law to assets
from reconstruction account and the insurance
contract, possibility of
a bank guarantee SGDB
Advancing of assets from
the reconstruction account, insurance deposit
Stand-by law to assets,
guarantee of the SGDB,
own blank bill bank acceptance of the community
of the apartment owners
Advancing of assets from
the reconstruction account
Stand-by law to assets of
physical persons, insurance
deposit of physical persons,
bank guarantee of the
Slovak Guarantee and Development Bank up to 100
% of the stock of the loan
Insurance deposit of the
residential building, deposit of financial means at
the account of the client
Insurance deposit of the
residential building, deposit of financial means at
the account of the client
Interest rate
Individual
possibilities
of fixation
-
1/3/6 or 12 M
EUROIBOR +
margin from
1,2% - 3,1%
p.a. , Fix for
5 years From
5,80 % p.a. to
From 4,20% p.a.
– fix, variable
As of 5,63% p.a.
-
BASE RATE
2,95% p.a.
+ margin =
from 4% p.a.
12M or 6M
IBOR** + 1,50
+ margin of
the bank
* EUROIBOR - Euro Interbank Offered Rate, ** IBOR is the Interbank Offered rate
30 (105)
Building savings companies
The basic condition for utilization of finances from building savings
companies is a conclusion of a contract between an individual and
the building savings company regarding the individual’s saving for
an agreed target sum (the government subsidizes these savings). The
advantage of building savings schemes is that after a few years of saving, the individual can obtain from the building savings company
a loan (for the purpose of construction/renovation of housing) with
an advantageous interest rate, which is fixed during the whole period of the re-payment of the loan. There is also a limit on the difference between the interest charged by the building savings company
on the loan and offered on the savings. The building saving schemes
are by their essence focused on reconstruction of housing, whether
by individual owners or by associations of apartment owners. One
advantage of building saving schemes consists in the possibility receiving a state bonus (typically in the range of 10-15%) on the amount saved each year (the bonus is typically extended only for a limited number of years), which represents a certain incentive for the
savers; the amount of the state premium is calculated according to
the formula stipulated by the Act on Building Saving. A disadvantage
of building savings schemes consists in the time aspect as the client
qualifies for a construction loan only after the having fulfilled certain
conditions (typically having saved a certain percentage of the target
amount before applying for the construction loan). This requirement
can be solved with an interim loan, which is usually available on the
market with a higher interest rate than that charged on the actual
construction loan. The period of re-payment of construction loans typically ranges from 10 to 20 years. Below is an overview of construction loans and interim loans provided by building savings banks:
Table 8 Overview of products granted by construction savings (April 2010)
Guarantee
Building saving bank
Program
Value of the loan
Maturity
(min. amount –
in years
max. amount)
Prvá stavebná
sporiteľňa, a.s.
-
Min. 15 000 euro Up to 20 years
Wüstenrot stavebná
sporiteľňa, a.s.
REKOFOND
Up to 3 000000 € Up to 20 years
Ditto
Up to 4,99 % p.a. –
construction loan
ČSOB Stavebná
sporiteľňa, a.s.
Reconstruction
No reference
Ditto
From 2,9 % p.a. –
construction loan
Up to 25 years
( depending on the amount of the loan)
Solidary guarantee of the owners of the
apartments, terminated by a depot, creation of stand-by law for the property or to assets from the reconstruction
fund, or bank guarantee of the SGDB
Interest rate
From 2,9 % p.a. –
construction loan
It is the connection of a building loan to interim loan as well as the saving tool and securing within a relatively higher need of investment
31 (105)
in apartment house reconstruction which is a disadvantage to the
utilisation tools of building society banks when granting credit in
comparison with the tools of the commercial banks. Therefore it is
necessary to indicate, that building society banks recorded decrease
in the granted loans ranging between 23% and 37%, as well as a higher number of applicants for a change in the payment schedule.
According to this, it can be assumed that the interest of population
in loans has decreased and unwillingness to accept decision and obligate to the future has increased. Even if the majority of these statistics applies to the individual owners of the apartments and their
current financial situation, we can state, even on the basis of these
figures, that the willingness of the owners of the flats to approve, for
example, the increase in the renewal fund to cover the loan installments, would be lower than in the past. For this kind of approval, suitable arguments will be necessary, e.g. in the form of suitable loan
parameters and evident savings on the heating costs.
Obstacles to the commercial loan from the loan applicants‘ point of
view were the length of administrative process and securing of the
loan means. Both factors are slowly being mineralised. The first factor is connected with the approach of the flat owners towards the
maintenance of residential building. Before the loan application it is
necessary to accept the decision about the investment in the reconstruction of residential building and the decision of the loan application. 2/3 majority of apartment owners are needed for approval in
both cases, where in some apartment houses this could represent
a communication barrier followed by various interests of the individual owners. Consequently, after the approval of bank guarantee, the
assessment process about the suitability to issue a guarantee by the
SZRB or the Commercial Bank, was postponed. These factors excessively prolong the administration process within preparation of the necessary technical documentation and the bank activities. Regarding
the loan provision, there has been a reduction in the amount and
type of collateral. At present, restriction of the right of renewal fund
debt disposal and immobilization of residential building insurance in
favour of the credit bank is a standard procedure. Flats as collaterals
for the loan, solidary guarantee are slowly becoming one of many
options of securing the loan means. On one side this could be caused
by the competitive environment and on the other side by the financial stability of this segment. Banks do not grant loan to a residential
building with a high rate of bad payers as well as insufficient amount
of reconstruction funds that serve as loan repayment. If a commercial
bank grants a loan to a residential building based on the assumption
that the given residential building would not represent a risk of insufficient funds in order to pay the installments. This could occur only
in the case of a massive demographic deterioration in the residential
32 (105)
building. Acceleration of banking administrative processes is related
to the introduction of the screening assessment models. Several subjects on the markets provide benefits for the loan applicants for the
residential building reconstruction. These benefits include:
• Complimentary assessment of energy efficiency state/ energy
consulting
• More favourable conditions for saving programmes
• Cooperation with the providers of construction works – more favourable costs for construction works, professional consulting.
• State bonus in case of building society saving account.
From the banks‘ point of view, insufficient funds for the loan repayment represent an obstacle to granting a loan for residential building
reconstruction. Loan formation is influenced by two factors: - by residential building investment needs and by an agreement of the owners to solve the residential building restoration comprehensively.
Many residential buildings with different demographic structure encounter resistance of mainly elder residents especially during financially demanding maintenance or thermal insulation works. In case of
insufficient funds to cover loan installments, the increase in the renewal fund must be agreed by a 2/3 majority of the owners. This could
represent a problem and for the whole residential building this could exhaust all possibilities for loan withdrawal. Following the discussions with commercial banks we understand that for the competitive reasons the banks are not willing to provide specific data about
the number of granted loans. On the basis of competent estimates of
bank representatives we can observe that within the next three years we could count on the increase of loan grants within the residential buildings reconstruction segment. The aggregate estimate within
the whole banking sector represents financial means worth around
0.5 billion euro’s.
Specifics within crediting of the sector
To have the reimbursement of financial sources approved, the cities
and municipalities are obliged to follow several regulations and legal
norms, mainly the Act No. 523/2004 Coll. a. about Budgetary Regulations within the public administration regarding the amended law
later read as Act No. 583/2004 Coll. about budget regulations of municipalities and about the future amendments to the law.
(6) In order to complete their tasks, the municipality and the higher
administration unit could for the fulfilment of their tasks accept returnable financial sources on condition that:
33 (105)
a) The total amount of debt of the municipality or the higher territorial unit does not exceed 60% of the actual income of the previous
budgetary year and
b) The total of annual instalments of returnable financial sources including the reimbursement proceeds does not exceed 25% of the actual income of the previous budgetary year.
(7) The total amount of debt of a municipality or the higher territorial
unit for the purpose of this law is understood as a total of obligations
resulting from the principal repayments of the refundable financial
sources towards the end of the budgetary year and the sum of total
liability of the municipality or the higher territorial unit.
(8) According to the paragraph 7, the total municipality’s amount
owed does not include liabilities from loans granted by the previous
national funds 22) and from the loans granted by the National Housing Stock for the development of municipal renting apartments: 23)
equal to the loan instalments where their amount due is included in
the annual rent of the council flats. According to the paragraph 6, letter b), the amount of annual instalments of returnable financial sources does not include the lump sum payment.
Mainly the last specifics misrepresent the loan carrying-capacity of
cities and municipalities, within the assessment and acceptation of
clients from the administration, it is therefore necessary to cooperate
with the commercial banks which have elaborated a complex assessment of models for the credibility of the administration.
Association of owners, Management companies
They belong to the stable and sought-after clientele in commercial
banks. Their management is not considered to be a business risk as
it is in the case of corporate base. Their source of income is generated by compulsory payments made by the owners of the individual
flats. In case of a commercial loan for residential building reconstruction it is necessary to cover the loan costs through sufficient amount
of funds. The problem occurring during commercial loan repayment
can be a failure to create funds for the reason of a high amount of
bad payers ownership structure of residential building.
34 (105)
3. IDENTIFICATION OF POSSIBLE
MARKET GAPS
(DEMAND SIDE ANALYSIS)
The main concept of the conducted analyses was based on primary targets of JESSICA implementation, with a special focus on requirements defined in the Terms of Reference. Two potential areas of
JESSICA implementation – Housing Stock and Urban Regeneration –
were selected.
The current economic situation of potential target groups (Households and Public Sector) and its expected development have significantly influenced the scope of the analysis in terms of economically
appropriate types of project selection.
Due to global economic and financial crisis, the Slovak economy has
experienced a decrease of GDP in 2009. Regarding available predictions of relevant institutions (Ministry of Finance, National Bank of
Slovakia, World Bank, International Monetary Fund, etc.), GDP of Slovakia should not decrease in next years, but its growth will be only
slow. As the GDP is the most important factor influencing the incomes of JESSICA key target groups, their economic situation has also
become worse and there is not real chance for its significant improvement in near future. This situation was highlighted in Moody‘s sector outlook for Slovak local and regional governments in December
2009 and followed by downgrade of rating of several Slovak cities in
the same month.
In this situation, it is not possible to expect significant demand for
financial (loan based) resources for a project without direct positive
(or at least neutral) impact on the financial and economic situation of
the beneficiaries. In these terms, the highest emphasis has been put
in our analysis on energy efficiency projects (in both areas) and on revenue-generating projects (in the Urban Regeneration area).
3.1. Housing Stock
Latest available data on number of flats in residential buildings in full
detail date back to 2001 (census of population, houses and flats executed by Statistical Office of Slovak Republic). As the data for 2002 –
2008 are not available in the same format, the overall number of flats
35 (105)
in residential buildings was calculated in respect to several data resources. The increase of number of flats in 2002 – 2006 was determined
from the information in the Information System of Construction and
Regional Development (http://www.ueos.sk/mvrr.sr/isvov/). Data for
the period 2007-2008 were identified from the Information on Housing Construction in the Slovak Republic in 2008, published by Ministry of Construction and Regional Development.
Through combining different data resources, it is possible to derive
the following numbers of flats in residential buildings in eight Slovak
regions:
Table 9 Flats in residential buildings
Region
Slovakia – Total
Bratislava
Trnava
Trenčín
Nitra
Žilina
Banská Bystrica
Prešov
Košice
2008
888 859
180 082
75 779
103 025
96 542
95 492
110 658
100 126
127 155
Source: Expert estimation based on data from Information System of Construction and Regional Development (http://www.ueos.sk/mvrr.sr/isvov/) and from Information on Housing Construction in Slovak Republic in 2008, MCRD, 2009, (http://www.build.gov.sk/mvrrsr/source/news/files/003760.zip)
36 (105)
Structure of the housing stock
The objective of the analyses of the composition of the housing stock
was to define the target groups for support through the JESSICA mechanism. Key elements from this point of view are criterion of age
and construction type.
The first result of the analyses is a set up of the number and percentage share of apartments according to individual construction periods. The data in the following table illustrate that the most widespread market segment would be houses build since 1961 up to 1990.
Table 10 Age structure of flats in residential buildings
Measure
Number of flats
Share on overall volume
78 831
8,87%
2000-2001
16 985
1,91%
159 648
17,96%
278 701
31,35%
238 006
26,78%
1991-1999
17 610
1,98%
1981-1990
6 327
0,71%
1971-1980
1946-1960
6 580
0,74%
1961-1970
1919-1945
Number of flats
Share on overall volume
do r. 1919
Measure
Not Identified
Construction Period
42 806
4,82%
Construction Period
2002 2003 2004 2005 2006 2007 2008 Total
4 711 5 897 3 622 5 766 6 111 8 581 8 677 888 859
0,53% 0,66% 0,41% 0,65% 0,69% 0,97% 0,98% 100,00%
Source: Period till 2006: Information System of Construction and Regional Development (http://www.ueos.sk/
mvrr.sr/isvov/); Period 2007-2008: expert estimation based on data from Information on Housing Construction in Slovak Republic in 2008, MCRD, 2009, (http://www.build.gov.sk/mvrrsr/source/news/files/003760.zip)
Mainly panel buildings have been built within the mentioned period
– specifically constructions of single-layer and sandwich panels. These two types of buildings represent 81% of the overall housing stock.
The results of the analysis of the housing stock structure and related
findings have been subsequently utilized to identify measures contributing to reconstruction of residential buildings, and their costs.
Scope of residential buildings reconstruction
Residential building reconstruction in general includes the following
measures, which to a greater or smaller extent contribute to a decrease in energy consumption:
RM_1 / Thermal insulation of outdoor walls;
RM_2 / Roof insulation (damp proof insulation and thermal insulation);
RM_3 / Exchange of windows in common areas and entrance doors
exchange
37 (105)
RM_4 / Exchange of all windows (usually provided individually by flat
owners);
RM_5 / Thermal insulation of cellar ceilings;
RM_6 / Thermostatization and adjustment of heating system;
RM_7 / Reconstruction of vertical pipes and horizontal distribution pipes;
RM_8 / Reconstruction of electric installations (inside of flats provided by
flat owners);
RM_9 / Reconstruction of conductors;
RM_10 /
Reconstruction of balconies and loggias;
RM_11 /Reconstruction of elevators and elevator shafts;
Subject to certain conditions this set of measures could be expanded by measures for the utilization of renewable energy sources in
residential buildings (these measures do not decrease energy consumption, however they contribute to a decrease of energy costs):
RM_12 /Installation of solar thermal collectors for hot water preparation;
RM_13 /Installation of heat pumps for heating and hot water preparation;
With regard to the preference and the financial-economic situation of
the target groups we consider the utilization of the measures RM_1
up to RM_12 as a priority, which have been utilized also within defining of the final products parameters.
Average costs connected with the complex reconstruction, including
just these measures, have been based on an analyses estimated in
the amount of 17 754 euro/apartment. This amount was consequently utilized to calculate the financial volume of the uncovered part
of the market (market gap).
38 (105)
Market gap
A basic estimate of an the overall market gap may be made through
a multiplication of the number of not yet refurbished flats and the
average costs of a specific refurbishment approach.
Summary of available information on housing stock refurbishment in
the past:
1/ Number of flats for renovation at the end of 2004: 808 848
flats
2/ Number of flats refurbished, which have been using loans
from the SHDF and subsidies from the MCRD SR
Table 11 Housing supported from SHDF and subsidies from MCRD SR
YEAR
2005
2006
2007
2008
2009
TOTAL
Source:
Number of flats
11 174
14 936
27 951
22 501
41 978
118 540
MCRD SR, 2009
3/ Number of flats reconstructed from commercial financing and
from private resources of flat owners (contributed into funds of
repairs and maintenance created by every apartment building)
Financial resources of commercial financial institutions invested in refurbishment of the housing stock in the period 2005 – 2009 are estimated at the level of 4 billion SKK (132,8 mill euro) per annum. Own
resources of flat owners used for housing refurbishment are estimated at the level of 6,3 bill SKK (211,9 mill euro) annually2. This gives
a total amount of 344,7 mill euro invested per annum. With the average price for a complete refurbishment estimated at 17 754 euro,
this suggests that approximately 19 000 flats were refurbished annually in the 2005-2009 period. It could be expected that a maximum of
95 000 flats were reconstructed within 2005 – 2009.
2
“Status and need of financial resources for housing stock renovation in 2007-2013” approved by the Decree of Slovak Government from 12th of October 2005 (prepared by MCRD)
39 (105)
Summary
Table 12 Calculation of market potential
Input
Balance in 2005
SHDF (2005 - 2009)
Commercial and private financing (2005 - 2009)
Remaining number in 2010 (from 2005)
Flats build within 2005 – 2008
Actual Balance (without construction in 2009)
Flats not older than 20 years
Market potential
Number of flats
808 848
118 540
95 000
595 308
29 137
624 445
103 155
521 290
The previous table represents an actual balance of non refurbished
flats in Slovakia. This number has to be reduced by the number of
flats in buildings which are not older than 20 years (as this is a commonly accepted period after which buildings needs a complete renovation). In these terms, the number of flats in need of renovation is
521 290. This represents in financial terms a market volume of almost
9,3 billion euro (in case of complete refurbishment).
Expected Development of the Market and
of the identified Market Gap
First it is necessary to estimate the share of the housing refurbishment market expected to be served by investments of the SHDF,
commercial financial institutions and private persons (hereinafter
“competitive products”). This estimation is based on extrapolation of
past trends.
Table 13 Annual Number of Flats Refurbishments through competitive products
Annual Number of Flats Refurbishments financed from:
Financial source
Allocation (euro/year)
Flats*
SHDF + MCRD subsidies
Commercial financing
Private financing
TOTAL
25 000 000
132 775 675
211 860 187
369 635 862
1 408**
7 479
11 933
20 820
* Calculation based on average investment for a complete refurbishment
** Calculation covers complete refurbishment with investment costs 17 754 euro/apartment, instead of average support from this resource in amount of 4297 euro/apartment (average for period 2005-2009)t
The previous table illustrates that it is possible to finance refurbishment of 20 280 flats through existing products (SHDF, banks, private
resources). The following table presents the expected development
of the remaining market gap in the next 20 years:
40 (105)
2028
2029
20 280
4 756
385 097
262 926
20 280
20 280
4 756
400 620
274 528
20 280
262 926
242 646
4 668
4 308
8 678
20 280
4 756
416 144
286 226
20 280
274 528
4 874
8 582
20 280
4 756
431 668
300 395
20 280
286 226
5 082
6 111
20 280
4 756
447 192
314 909
20 280
300 395
5 333
5 766
20 280
4 756
462 715
331 567
20 280
314 909
5 591
3 622
20 280
4 756
478 239
345 952
20 280
331 567
5 887
5 895
20 280
4 756
493 763
361 522
20 280
4 710
345 952
6 142
20 280
4 756
509 287
373 309
20 280
361 522
6 418
8 493
20 280
23 801
524 811
385 097
20 280
373 309
6 628
8 493
flat
2019
400 620
6 837
2027
flat
2018
416 144
7 113
2026
flat
2017
431 668
7 388
2025
mil. EUR
2016
447 192
7 664
2024
flat
2015
462 715
7 939
2023
flat
2014
478 239
8 215
2022
flat
2013
493 763
8 491
2021
mil. EUR
2012
509 287
8 766
2020
flat
2011
524 811
9 042
Input
unit
Balance of
not reconstructed flats
Flats reconstructed from
competitive
produts
Addition of flats
after reaching 20 years
of life time
Remaining
market share
for JESSICA
products
Financial expresion of remaining share (price
level 2009)
521 290
2010
flat
Input
unit
Balance of
not reconstructed flats
Flats reconstructed from
competitive
produts
Addition of flats
after reaching 20 years
of life time
Remaining
market share
for JESSICA
products
Financial expresion of remaining share (price
level 2009)
9 317
Table 14 Annual Number of Flats Refurbishments
The figures presented in previous table provide clear evidence of
a large potential for utilization of JESSICA financial products in the
area of Housing Stock Refurbishment.
41 (105)
3.2. Urban regeneration sector
This part of the analysis is in line with the above presented initial ideas, which are focused mostly on the identification and evaluation of
the market potential in projects with a positive effect on the economic situation of a potential beneficiary. This focus is based on the assumption that the main target group in this sector would consist of
public sector institutions (mostly municipalities).
The study identifies potentially suitable projects in two areas: 1/ Public buildings, 2/ Integrated Energy Strategies.
Public Buildings
The process of financing of energy efficient reconstructions of public
buildings is only a basic part of a wide spectrum of possibilities in the
area of urban regeneration.
Prospective projects in the area of public building reconstruction
may be designed in a similar way as in the case of housing stock refurbishment.
The main requirement of the public sector is the elimination of the
most important technical failures and the reduction of operational
costs. This can be done through:
• Reconstruction of the roof
• Thermal insulation
• Exchange of doors and windows
• Thermostatization and adjustment of the heating system
• Reconstruction of electrical installations
• Reconstruction of heat resource (RES based if appropriate)
If the owner/manager of a specific building considers that the realization of additional measures can bring secondary benefits (not only
financial but also in the sense of quality of life or comfort), also the
following types of intervention may be undertaken:
• Installation of ventilation and air-conditioning system (not suitable for schools)
• Disabled facilities
• Renovation of indoor surfaces
Where possible, also measures for RES utilization can be provided. In
public buildings these should usually be as follows:
• Fuel switch of heat resource (usually to biomass)
• Installation of solar collectors for hot water preparations (not suitable for schools)
42 (105)
• Installation of heat pumps for heating / hot water preparation
• Exploitation of flat roofs through installation of photovoltaic panels
Market potential
The overall cubature of buildings was set as the starting point for
specification of market potential in area of public buildings. Taking
into consideration the available case studies and pilot projects the
average costs of basic reconstruction are estimated at the level of 36
euro/m3 (price level of 2009). With the total cubature of public buildings (113 501 274 m3) the basic market volume (need of resources
for basic reconstruction) is 4 086 mill euro.
Within the existing two programming periods for structural funds,
certain amount of resources was allocated for reconstruction of public buildings. In the first period (2004 - 2006) the total costs of projects within the measure OP ZI 14.3.1 Construction and Development
of Civil Infrastructure in Regions (only public buildings were eligible)
reached a value of 746,9 thousands euro. This amount is adequate for
financing of a basic reconstruction of 22 031 m3 of public buildings
cubature.
Table 15 Reconstructions of public buildings
Input
initial balance
Reconstructed within SF 2004-2006
Reconstructed within SF 2007-2013
year
til 2009
2010
2011
2012
2013
2014
2015
2016
Cubature of Buildings (reconstructions)
Cubature of Buildings (outstanding balance)
Financial expression
m³
m³
mil. EUR
22 031
6 690 952
6 690 952
6 690 952
6 690 952
6 690 952
6 690 952
6 690 952
113 501 274
113 479 243
106 788 291
100 097 338
93 406 386
86 715 433
80 024 481
73 333 529
66 642 576
3 844
3 604
3 363
3 122
2 881
2 640
2 399
In the second period (2007-2013) resources were to this date allocated for relevant measures in the amount of 25,8 mill euro. This is
adequate for reconstruction of 17 475 268 m3 of public buildings cubature. Outstanding resources in the amount of 1 057 mill euro will
be utilized for reconstruction of 29 361 399 m3 of public buildings
cubature. We assume that both resources (allocated to projects and
also not yet allocated) will be distributed evenly within 2010 – 2015.
The development of the adjusted market potential in the area of
43 (105)
public buildings was presented in the previous table. The pure market share remaining for JESSICA operations (or other competitors)
is almost 2,4 bill euro.
Energy consumption and savings potential of public buildings
Data regarding energy consumption of public buildings are presented in the next table. Only data on heat consumption for heating are
presented, as these provide almost 80% of the overall energy consumption. As mentioned above, higher volume of investments in
public buildings reconstructions was realized since 2004 with support
of structural funds. As these reconstructions were focused on complete renovation of buildings in poor technical conditions in the first place, the criteria of energy efficiency were only partially considered. Due
to still ongoing realization of great part of these projects (especially
from programming period 2007 – 2013), no reliable data on results (in
terms of energy savings) are available.
The figures illustrate that the heat consumption within the monitored
period is stable. This may lead to a conclusion that almost no energy
efficiency investment were made in this sector within the period of
1994 – 2002.
Other important conclusion is based on a comparison of average
consumptions for buildings with different utilization. Highest consumption is in hospitals and health care centers. Lowest consumption
is in elementary schools (not considering cultural facilities, as these are
not heated permanently). These findings are important for a potential
future design of products for specific categories of public buildings.
Table 16 Average heat consumption for heating according to the purpose of use
Purpose of Use
Anual heat consumption for heating v kWh/(m3.year)
1994 1995 1996 1997 1998 1999 2000 2001 2002
Schools
Trade and Services
Health Care
Culture
Administration
accomodation
Sport
Other
TOTAL
from which Elementary Schools
51,3
54,5
60,1
47,3
56,9
56,5
47,4
55,4
53
49,5
51,9
54,1
59,7
45,5
59,8
59,4
45,8
54,9
54,2
49,7
53,9
65,9
79,8
46,4
62
62,7
47,9
61,4
58,7
51,2
52,8
63,7
76,2
46,7
60,4
60,3
46,7
59,3
57,1
50,2
51,5
60,5
71,3
45,4
58,3
59,4
43
58,1
55,4
48,4
51
53,7
72,1
45,1
58,1
61,1
44,7
58,6
55,3
47,6
46,8
50,3
68,5
37,6
53,1
58,2
41,9
56,4
51,2
42,5
51,5
54,2
71,5
40,9
57,2
64,1
43,6
61,2
56,1
47,3
49,7
50
65,3
33,3
54,6
55,6
34,2
60
54,8
47,6
Average consumption
within 1994 - 2002
51,2
56,3
69,4
43,1
57,8
59,7
43,9
58,4
55,1
48,2
Source: VTP 0402840512 – VVÚPS – NOVA, s.r.o. (Technical and economical aspects of energy consumption decreasing in state-owned buildings); in:
Speech on fulfillment of Concept of renovation of buildings with emphasis on housing stock renovation – Informational document from session of government (31.03.2004)
44 (105)
Even though elementary schools represent a category with the
lowest average consumption (per m3), in comparison with the overall annual consumption (following table) they are placed on the opposite side of the scale. They are a very important energy consumer
from the public sector. This is very important, due to the fact that all
of these schools are under the responsibility of municipalities, while
other groups of buildings are more or less equally distributed among
all levels of public administration (central, regional, municipal level).
This means that operation of schools is a great burden for municipal
budgets.
Table 17 Annual heat consumption for heating according to the purpose of use
Purpose of Use
Schools
Trade and Services
Health Care
Culture
Administration
Accomodation
Sport
Other
TOTAL
from which Elementary Schools
Average consumption within
1994 - 2002
Cubature of Buildings
Anual Energy Consumption
m³
MWh/year
51,2
56,3
69,4
43,1
57,8
59,7
43,9
58,4
55,1
48,2
57 795 527
771 383
15 173 721
3 027 318
14 032 953
10 072 778
734 839
11 892 755
113 501 274
27 000 632
2 959 131
43 429
1 053 056
130 477
811 105
601 345
32 259
694 537
6 253 920
1 301 430
Source: VTP 0402840512 – VVÚPS – NOVA, s.r.o. (Technical and economical aspects of energy consumption decreasing in state-owned buildings); in:
Speech on fulfillment of Concept of renovation of buildings with emphasis on housing stock renovation – Informational document from session of government (31.03.2004)
With regards to the overall savings potential of the heat economy of
public buildings, no reliable data are available. The reasons include
the virtual non-existence of broader experiences with measures of
thermal protection in this field. Through focus on values of the average energy consumption, it is possible to conclude that the value
of the overall average for all buildings and for the monitored period
(55,1 kWh/m3/year) – it is almost double of the standard calculation
value defined in relevant technical standards for this types of buildings. This means that potential savings from appropriate measures
in the heat economy of buildings will be at least 40% from the current consumption.
Another very important energy efficiency measure is the renovation
of lighting in public buildings (especially schools and administrative
buildings). The estimated saving of electricity is 97MWh annually for
a standard school and 86MWh annually for an average public administration building.
45 (105)
3.3. Integrated Energy Strategies
Cities are living systems. There is only a very limited number of actions which can be taken without significant influence on other city
subsystems. Reconstructions of buildings are (in common) one of
them, maybe as the only energy related measure.
Energy is part of every city subsystem (such as housing, district heating, water management, waste management, transport, water treatment, …), and thus all energy related measures have to be considered in respect to all relevant subsystems, with the aim to ensure
a maximum efficiency of investment costs and also maximum utilization of available energy.
Such approach requires cooperation of various subjects, which are
active in the city or the respective region. Municipal governments are
responsible for quality of living of the inhabitants, and thus it must
be their interest to provide adequate conditions for stable energy delivery for an affordable price. The best way to ensure this is coordination and tampering of activities of energy stakeholders on their territory with a clear target. Influence in the energy sector could help to
solve also problems of other cities in different areas (especially water
and waste management). Attracting other subjects on their territory
(as biomass suppliers, industries,…) may help municipalities to ensure better energy prices or other benefits for the inhabitants (i.e. preservation or creation of jobs).
The problem with the introduction of a similar system in Slovakia is
lack of experiences on the municipal level. This may be probably an
opportunity for the development of activities of an investment fund
established under JESSICA. In such a case, the fund will ensure not
only the financing of existing projects, but also the technical support
to cities or their partners. The benefit of such establishment could
be creation of a new market segment, instead of competition on the
existing market.
Outline of Market Potential
As the integrated energy strategies utilize the most advanced technologies (in many cases not present yet in Slovakia), with the aim
to maximize synergies between several subsystems, it is almost impossible to precisely define the need for financial resources for such
a product.
The market potential for the above introduced concept of integrated energy strategies can be tentatively derived from partial poten-
46 (105)
tial of selected segments, with utilization of the actual market prices
for known technologies.
Housing Sector
It is possible to expect that one half of flats in the residential buildings can be reconstructed within such integrated strategies:
Market potential: 5 000 mill euro (in 2010)
Public Buildings
It is possible to expect that one third of public buildings can be reconstructed within such integrated strategies:
Market potential: 800 mill euro (in 2010)
Biogas Stations – new construction
Investment costs per 1 MWe of installed power: 4 mill euro
Potential of Slovakia: 1000 MWe of installed power
Total potential: 4 000 mill euro
Market potential: 1 800 mill euro (in 2010)
Public Lighting Reconstructions
Total potential: 70 mill euro per year
Market potential: 30 mill euro per year
With regards to this selection, without considering additional segments (as construction of water treatment plants), it is possible to
conclude that the utilizable market potential for integrated energy
strategies will reach at least 9 000 mill euro in 2010, with the tendency of a slow decrease in the future. Due to persisting lack of experiences of municipalities within the area of project coordination (required
for integrated energy strategies implementation), the minimal market potential may be estimated at volume of 1 500 mill euro in 2010.
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4.SWOT ANALYSIS
Strengths
• Complementarities to existing financial products;
• Multiplication of available financial resources through attracting
additional investors (leverage effect);
• More efficient and effective administration of financial resources
from structural funds (speeding up the process of allocation and
decrease of administrative burden);
• Immediate access to capital with no time constraints
• Sustainability of financing even after the programming period
2007 – 2013 due to revolving nature of sources;
• Good experience of commercial financial institutions with similar
products;
• Professional project selection process through SHDF or commercial institutions as financial intermediaries – among other advantages also possible corruption behavior elimination.
Weaknesses
• Innovative approach is a new element in the already operating
system – everything “new” brings obvious resistance to the system;
• Dependency on political decision; allocation changes in the approved operational programs is an administratively complicated
process, which requires political will and appropriate timeframe;
• Start of process design is too late – in the middle of the programming period a substantial part of the potentially available resources is already allocated in other ways;
• The loan principle – possible competitive disadvantage in comparison to grants, if the product is inappropriately designed
Opportunities
• Creation of financially sustainable and market driven instrument
on a revolving base;
• Transfer of know-how from already implemented JESSICA
schemes in other countries;
• Possibility to bring added value in comparison to competitive
products;
• Existence of sufficient number of development ideas;
• Spread of investments risk for potential target groups in “bad economic times” – needs for more savings;
• Interest of the representatives of regions/cities in development
projects, which lead to improvement of living standards of people;
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• Bring more flexibility of the OP to react on immediate market
needs;
• Broad the product portfolio of commercial institutions;
• Broad the possibilities for municipalities to raise funds for development projects.
Threats
• Missing experiences with a tool of a similar type in the SR, within
financing of projects of cities development (existing experiences
– preparatory phase for the JEREMIE project);
• Majority of the projects is in a preparatory phase (idea design);
• Insufficient allocations from structural funds, reluctance against
a transfer of sufficient allocations from structural funds;
• Prolongation of the process of implementation of the initiative
(set up of implementation structures) – high commitment of
sources in favor of contracted projects;
• Deterioration of economic situation of potential target groups –
lack of own financial resources
• Reluctance to utilize recoverable forms of financing from the side
of the public sector;
• Non-existing methodology for the transfer of financial sources
from the related operational program;
• Reorganization of important ministries – the merge of the Ministry of Construction and Regional Development SR and the Ministry of Economy SR after the elections in June 2010 may cause
a prolongation in JESSICA implementation.
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5. IMPLEMENTATION STRUCTURE
As soon as we start to consider the possibilities of the implementation of the initiative JESSICA in the SR, it is necessary to be aware
that the core resources, which should be utilized for this implementation, are resources of the operational programs of the structural
funds. They are therefore governed by EU regulations and corresponding national legislation. The following analysis describes in detail
the possibilities of implementation of the JESSICA instrument on the
basis of Article 44 of the Regulation 1083/2006 and the variants that
were presented the Interim Report.3
Legal framework of the implementation
of instruments of financial engineering
The implementation in the programming period 2007 – 2013 of the
operational programs of structural funds that are relevant for the
purpose of implementing JESSICA is governed by the Regulation of
the European Parliament and the Council (EC) No.1080/2006 of 5 July
2006 on the ERDF, and through the Regulation of the Council (EC)
No. 1083/2006 of 11 July 2006, in which the general provisions on the
ERDF, European Social Fund (ESF) and Cohesion Fund (CF) are established. Implementing provisions are contained in the Regulation of
the Commission (EC) No.1828/2006 of 8 December 2006. These regulations establish, inter alia, also the conditions for the application of
innovative financial instruments in the programming period 2007 –
2013.
3
This study analyzes implementation options within the context of JESSICA as an initiative
for sustainable urban development, implemented through urban development funds (UDFs) as the
key delivery vehicles. We are aware that on 25 June 2010, the amending regulation 539/2010 entered
into force, changing the wording of Article 44 of Regulation 1083/2006 to the effect that operational programme resources can be used not only through urban development funds but also through
“funds or other incentive schemes providing loans, guarantees for repayable investments, or equivalent instruments, for energy efficiency and use of renewable energy in buildings, including in existing housing”. This new financial engineering mechanism, designed specifically to support energy
efficiency and renewable energy investments in existing housing, was based on the Commission’s
legislative proposal COM (2009) 384 final and was approved by the European Parliament on 5 May
2010 and the Council on 3 June 2010. Although this study does not explicitly discuss implementation
options based on this amendment (which had not been adopted at the time the study was being
elaborated), we consider that the substance of the analysis and the conclusions remain unaffected:
If JESSICA is implemented in Slovakia with housing refurbishment and energy efficiency being the
main initial focus, then the State Fund for Housing Development is an obvious candidate for the role
of a UDF or of a “fund … providing loans … for energy efficiency and use of renewable energy in
buildings, including in existing housing”. Likewise, the merits of the options where a Holding Fund is
included in the implementation structure remain the same: a Holding Fund enables early absorption,
increases the leverage possibilities, facilitates a transfer of know-how and can play a strategic role in
the future as a structure through which new urban development funds can be readily established
subject to availability of funding.
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In general, two types of funds can be established as part of the process of implementing the JESSICA mechanism:
• holding fund (HF), which is defined as a fund set up to invest in
several urban development funds; and
• urban development fund (UDF), which is defined as a fund investing in public-private partnerships and other projects included in
an integrated plan for sustainable urban development.
Managing Authorities of operational programmes can either enter
into contract with a UDF directly (following an appropriate procedure for selecting the UDF) or they can first enter into contract with
a HF and entrust to this HF the task of selecting and setting up one
or more UDFs. The experience across the EU so far is that managing
authorities are mostly implementing JESSICA with the utilization of
holding funds managed by the EIB.
Our analysis of possible implementation structures is based on analyzing and comparing the following four implementation options:
1) Urban Development Fund created by one or more managing
authorities on the basis of a public procurement procedure (the
SHDF could be one possible candidate);
2) Urban Development Fund created by way of a direct assignment
to a national institution (e.g. the SHDF);
3) Holding Fund managed by EIB, established as a separate block of
finance within EIB without own legal personality and aiming to invest operational program resources into one or more UDFs;
4) Holding Fund managed by EIB, established as a separate legal entity under Slovak law and aiming to invest operational program resources into one or more UDFs.
Options 1 and 2 correspond to Variant 1 presented in the Interim Report, i.e. the variant assuming that the resources available for JESSICA
are limited to 18 mill euro from the ROP and OPBR, pre-assigned for
interventions in housing, and that the State Housing Development
Fund could be used as the financial intermediary channelling these
resources to individual beneficiaries.
Options 3 and 4 correspond to Variants 2 and 3 presented in the Interim Report, namely variants assuming that the application of JESSICA in Slovakia need not be limited to interventions in housing but
can be used also e.g. for refurbishment of public buildings, waste
management, brownfield regeneration and urban energy savings.
In these occasions, assuming that the amount of available resources
may in the future exceed the abovementioned 18 mill euro, a holding
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fund would seem to be an appropriate and useful structure towards
setting-up and enabling the management of various future UDFs.
Before proceeding with a detailed analysis of the four options outlined above, it is useful to highlight once more the difference between
a holding fund and an urban development fund. Urban development
funds deal directly with individual project applicants, for which they
need strong presence in the regions. The operational programme
resources entrusted to an UDF are invested by the UDF directly into
projects. By contrast, a HF is a transitory entity which invests operational programme resources not into individual projects but into one
or more UDFs. All currently existing JESSICA holding funds are managed by the EIB. The reasons for managing authorities to utilize holding funds typically include:
-- the need to manage relationships with multiple UDFs;
-- the need for assistance with selecting the right manager of
a UDF;
-- the need for assistance with entering into a contract with the
UDF, providing all necessary conditions for repayable investment of operational programme resources;
-- utilization of EU-wide know-how with respect to selecting and
establishing UDFs;
-- the fact that while selecting UDFs directly may be a long process for the managing authority, establishing a holding fund
within EIB may be much less time-consuming. Whenever
a managing authority transfers operational programme resources into a JESSICA fund (HF or UDF), the OP allocation is
considered absorbed and the managing authority can apply
for a reimbursement (interim payment) from the ERDF. Where
the managing authority utilizes the holding fund option, the
possibility to transfer resources presents itself earlier than under the scenario where the managing authority has to select
and establish the UDF directly.
5.1. Option 1: Urban Development Fund created on
the basis of a public procurement procedure
Under this option, the managing authorities could select the State Housing Development Fund (SHDF) or another suitable institution to perform the role of a UDF; the selection would be done on
the basis of public procurement. The SHDF is considered in this study as a potentially suitable candidate for the role of an Urban Development Fund for the reason of its established experience with providing repayable financing for housing refurbishment as well as for
its network of regional offices, enabling it to be close to potential
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clients. Besides the SHDF, private banks with strong local representation may also consider applying for the role of the UDF. The study
does not propose the SHDF as a possible Holding Fund because it
has no experience with investing into other financial intermediaries
and is much better equipped for dealing with clients wishing to undertake housing refurbishment projects.
An assignment of a contract on the basis of public procurement is
possible only in conformity with the Act No. 25/2006 Coll. about Public Procurement and about the amendment and completion of some
of the acts in the wording of later regulations (hereinafter only “Act
on Public Procurement”). This alternative clearly implies that the Urban Development Fund, i.e. the provider of the services of an Urban
Development Fund, would have to be selected according to a procedure established in the Act of Public Procurement. Selection of the
UDF in accordance with the Act on Public Procurement would also
mean that a contribution of operational program resources to the Urban Development Fund would not raise issues of state aid in the sense of aid to the UDF itself. Within a tender, it is possible to expect offers from the SHDF and, depending on the amount intended to be
invested by the managing authorities, also from private financial intermediaries or from consortia, of actors capable of financing the target projects. It is important to mention that in the case of a selection
of a subject as a UDF, this subject takes on important responsibilities
for the implementation of the structural funds resources in accordance with the rules of the relevant operational program. A description
of possible financial instruments to be offered by the candidate-UDFs
in the tender is provided below in a separate part of the document
(investment strategy).
European Comission – DG Regio
Financing
responsibility
Managing
authorities
Public procurement tender
Awarded company through
selection process (e.g. SHDF)
P R O J E CTS
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Scheme of UDF investing in projects
Advantages
• transparent method of selection through a tender; when defining
the selection criteria it is possible for the managing authorities to
establish conditions regarding professional experience of the applicant and knowledge of the market conditions in Slovakia;
• possible top-up of the available sources of the operational programs in case of candidates other than SHDF; however, in interviews with banks, we did not detect any large interest of banks in
assuming the role of a UDF in case the OP contribution amounts
only to 18 million euro and is limited to interventions in housing;
• professional management of the fund would mean a reduced requirement on administrative capacities on the side of managing
authorities.
Disadvantages
• the process of public procurement requires long-term professional preparation, probably with the use of experienced international consultants;
• additional difficulties with the procurement procedure may arise
if two or more managing authorities want to invest OP resources.
into a UDF common with other managing authorities;
• the process of public procurement itself is time demanding and
at the end of the day this could reduce or completely outweigh
the advantages of prolonging the deadline for utilization of resources from the ERDF. Taking into consideration the fact that the
resources of operational programs have to be invested into urban
projects at the latest by the end of 2015, there could be a threat
of de-commitment of these sources. Besides the process of preparing the public procurement it is necessary to count also with
the time for the conduct of the tender, subsequent negotiations
about the detailed conditions of cooperation between the managing authorities and the UDF and of course also with a period for
preparation and execution of the investments as such. If leverage
is one of the conditions, it is inevitable to take into consideration
also the time needed for the search for co-investors.
5.2. Option 2: Urban Development Fund created on the
basis of a direct assignment to a national institution
In the Slovak Republic there are institutions which have in their portfolio activities similar to those envisaged in the implementation of JESSICA.
This concerns in particular the State Housing Development Fund, which is
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established by the Act No. 607/2003 Coll. on the State Housing Development Fund in the wording of later regulations (further only “Act on SHDF“
). In a nutshell, as pointed out already under option 1, the advantage of
the SHDF is that it is an existing institution with established experience as
regards provision of repayable financing for housing refurbishment. The
SHDF also has several regional offices, which means that it is well-accessible to clients like individual apartment owners or housing associations.
However, although Slovakia does have public institutions which have experience with serving as financial engineering instruments, such as SHDF
and SGDB, the country does not currently have a national institution capable of implementing instruments of financial engineering in a full implementation cycle in the context of structural funds, i.e. up to the submission of final reports and accounts to the managing authority (showing
the utilization of operational program funds, monitoring reports etc.) and
a final audit. The SHDF, in particular, has experience in dealing with resources transferred to it from the state budget, but not from operational
programs of structural funds. Therefore it cannot be said at present in Slovakia that an institution exists to which the implementation of JESSICA
and fulfilling all conditions could be readily entrusted. Besides of this, no
matter of a successful implementation of JESSICA in the SR could the EC
attack the legislative itself, which couldn’t be taking into consideration the
actual situation in the SR, directly assign the implementation to a concrete institution and to put into question the legitimacy of the commitment
of sources through such an institution. Such an EC control would be an
ongoing or only ex post. If, such an action would be applicable, it could
happen that during the implementation or only after 2015 the relevant
EC authorities could express their doubts with the competence of such
an action in the wording of the adopted national legislative, whereby the
risk of non-authorized commitment of sources and a subsequent return
of sources to the European Commission could not be at present excluded. We may put in risk the whole implementation if at national level the
decision is taken to award the grant to national institution assumed to
Financing
responsibility
Managing
authorities
SHDF
signature of a financing
contract in
accordance with the
„Regulation 1083/2006 and
Regulation 1828/2006“.
P R O J E CTS
have adequate experience and this will not turn to be true during the ex
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post or on-going compliance audit from EU auditors. It is too risky to lose
whole allocation for JESSICA due to incompliance with EC regulations.
Advantages
• this solution does not require any legal steps for the creation of
a new subject through which the resources of structural funds
would be invested; This means no legal steps needed to be perfomed in creation of legal entity as UDF, e.g. entity set-up, raising
basic capital, legal structures like general assembly, supervisory
board – whole corporate structure, company registration etc.;
• the SHDF has sufficient experience in the area of the target projects (insofar as only housing renovation projects are considered)
and the demand for their products is exceeding the financial possibilities of the fund. The SHDF is providing sources for financing
under better conditions as commercial subjects, even if only to
a narrow group of target applicants, due to allocation limits.
• in a case of utilization of the experiences of the SHDF the implementation of such a model would not involve creating a new
product on the market that would be in competition to commercial subjects.
Disadvantages
• if the implementation of JESSICA would be reduced only to feeding of operational program resources into existing instruments of
the SHDF, such a solution would not bring innovative elements
into the financing of the target projects;
• the financing of projects through SHDF would not enable the
achievement of a leverage effect through inclusion of existing
commercial financial institutions or other private investors. Depending on the formulation of the loan product, leverage effect
could still be achieved at the level of the final beneficiary (e.g.
through a requirement that the beneficiary secures a certain percentage of the intended investment from other resources than
the UDF, such as own resources or commercial bank financing).
• the process of project selection is not based on any strategic concept of urban development; SHDF financing is provided to individual applicants on the basis of „first come, first served“ and
does not enable the support of complex solutions (e.g. support of
larger urban areas, which could bring more synergies). Taking into
consideration the limited volume of funds envisaged under this
option (18 mill euro), the funds would be disbursed within a couple of days/weeks. As the SHDF due to allocation limits can serve
only to a limited group of applicants, implementation of JESSICA
through SHDF would not solve the problem of the market gap
in financing of urban development projects. This disadvantage
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could be eliminated if an integrated approach was introduced, as
also envisaged, for example, by priority axis 4 of the ROP. For instance, only groups of buildings from the same area could be eligible and the housing interventions could be complemented by
additional urban development measures.
• in a case of an allocation of sources from the ERDF operational
programs to the SHDF, the implementation would probably require strengthening of the administrative capacities of the SHDF
and introduction of new procedures;
• necessity of separating the financing of projects supported from
the ERDF from other activities of the fund for the purposes of
monitoring, evaluation and control of authorized utilization etc.
• a separate category of disadvantages concerns the inevitable legislative changes – an amendment of the Act on Budgetary Regulations and the approval of a new legislative norm (amendment
of the so called “Act on Eurofunds”, eventually a “new Act on JESSICA“). Deeper and thorough analysis of necessary legal amendments is efficient to provide only if the political decision leads to
Option 2 selection. Also in the case of introducing such legislative changes, there is still a threat of non-authorization of commitment of sources from the structural funds if the EC does not
find the national legislative provisions to be in line with European
law. There is also a threat of financial corrections if the SHDF does
not prove to be ready for investing operational program funds in
accordance with the regulations. In a case of non-authorized expenditures, e.g. after the end of 2015 or not in line with the operational programs, the SR might have return the whole volume of
sources allocated for the initiative JESICCA.
5.3. Options 3 and 4: UDF(s) created through
a Holding Fund under EIB management
According to Regulation 1083/2006, Article 44, if a Holding Fund is
established (to invest in several urban development funds), the Member State or the managing authority shall implement the holding
fund “through one or more of the following forms:
(a) the award of a public contract in accordance with applicable public procurement law;
(b) when the agreement is not a public service contract within the
meaning of applicable public procurement law, the award of a grant,
defined for this purpose as a direct financial contribution by way of
donation to a financial institution without a call for proposals, if this is
in accordance with a national law compatible with the Treaty;
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(c) the award of a contract directly to the EIB or the EIF.”
Within the possibility of a direct award of the management of the holding fund to the EIB (letter (c) of Article 44 of Regulation 1083/2006),
two models of a Holding Fund could be considered from the point of
view of the legal personality of the HF:
1. Holding Fund with no legal personality (established as a separate
block of finance within EIB) – corresponds to Option 3 analyzed by
this study;
2. Holding Fund as a separate legal entity – corresponds to Option 4
analyzed by this study.
The legal framework of the Slovak Republic does not include a legal norm of public law, which would directly govern the set-up and
functioning of financial engineering instruments. However, EU regulations are by definition directly applicable in Slovakia. If EIB is to be
selected as the Holding Fund manager, the managing authorities can
enter into agreement with EIB directly on the basis of Article 44 of
Regulation 1083/2006. The possibility of direct assignment to EIB of
the management of a holding fund in the sense of Article 44 of Regulation 1083/2006 allows for creation of a Holding Fund without running a procurement process.
General advantages of implementing JESSICA
through a Holding Fund managed by EIB
• cooperation with a prestigious international financial institution,
which is a credible partner not only for the member state, but also
for the EC. Implementation of this model is increasing the credibility and neutrality against the EC, which is decreasing the risk
of a non-authorized utilization of operational program resources;
• cooperation with a financial institution, which is rated with the
highest rating score AAA/Aaa/AAA from three most important
rating agencies (Standard & Poor´s, Fitch Ratings and Moody´s);
• decrease of an investment risk for potential co-investors into JESSICA funds in Slovakia and consequently their increased interest
in investing;
• EIB as a manager can offer professional management of the Holding Fund and draw on know-how from implementing JESSICA
across the EU;
• possibility of achieving a leverage effect and thus more available
sources for the objectives of the operation programs financing
the whole scheme
• monitoring of implementation of operational program resources
is undertaken at the level of the Holding Fund, which reports to
the Managing Authorities;
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• introduction of best practice through cooperation with EIB, possibility of transfer of know-how to national institutions;
• fast implementation and immediate and effective absorption of
structural fund resources;
• lower risk of a non-authorized utilization of structural funds
• reduced requirements for administrative capacities of the managing authority.
General disadvantages of utilizing EIB
as a Holding Fund manager
• A Holding Fund might pose competition to national institutions
(e.g. SHDF, SGDB ) which may be interested in assuming the role
of a Holding Fund (However, this may even prove to be an advantage in the sense that it may be used as a benchmarking mechanism to assess the effectiveness of the national institutions). The
inclusion of national structures would be possible only on the level of financial intermediaries (urban development funds), which
would be selected in a tender conducted according to EIB procurement rules.
• It would be necessary to agree in the agreement between the
managing authorities and EIB (“funding agreement”) the ways for
gradual transfer of know-how to national institutions.
Option 3: Holding Fund without a legal subjectivity
(separate block of finance within EIB)
Article 43 (2) of the Implementing Regulation (EC) No. 1828/2006 states that:
“Financial engineering instruments, including holding funds, shall be
independent legal entities governed by agreements between the cofinancing partners or shareholders or as a separate block of finance
within a financial institution.
Where the financial engineering instrument is within a financial institution, it shall be set up as a separate block of finance, subject to specific implementation rules within the financial institution, stipulating,
in particular, that separate accounts are kept which distinguish the
new resources invested in the financial engineering instrument, including those contributed by the operational programme, from those initially available in the institution.”
When a JESSICA Holding Fund is established as a separate block of
finance within EIB (through the signature of a Funding Agreement
between the managing authorities and EIB), the managing authorities transfer the relevant contribution from the operational program-
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mes to EIB. These financial resources are then either kept in a treasury
instrument within EIB or they are deposited with a bank in Slovakia (if
the managing authorities instruct EIB to use this option). In any case,
EIB holds the resources concerned for and on behalf of the managing
authorities, i.e. the managing authorities remain the beneficial owners of the resources.
The relationship between EIB and the managing authorities is as follows: EIB is the manager/executive of the HF, submitting proposals
for decisions to an Investment Committee of the HF, where the voting power lies entirely with members nominated by the managing
authorities. An Investment Committee (or Investment Board) of a holding fund typically consists of 5 or 7 voting Members appointed by
the managing authorities and of 2-3 EIB representatives as non-voting observers. The principal tasks of EIB in managing the contribution of the managing authorities is to:
-- Conduct a procedure for selecting the manager(s) of UDF(s);
the selection procedure follows the internal rules of EIB as an
international organization;
-- Enter into contract(s) with the UDF(s);
-- Assist the managing authorities in meeting their obligations
under Structural Funds rules, such as monitoring of operations, reporting, etc.; and
-- Promote and explain the JESSICA instrument vis-à-vis potential beneficiaries and other stakeholders.
Where a JESSICA Holding Fund is created as a separate block of finance within EIB, the Funding Agreement establishing the HF is typically
concluded for an initial period of 3 years.
Financing
Managing
authorities
Investment comittee – managment
responsibility
authorities, experts
Account in EIB/depositary institution in Slovakia
MANAGÉR
EIB
Guarantees, Direct operations
SHDF
UDF 1
UDF 2
P R O J E CTS
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Specific advantages of the separate block of finance option
• simple arrangement through establishment of an account within
EIB, to which the financial resources from the OPs would be allocated. This implementation option would be the least time-intensive as the contract between the managing authorities and EIB
could be based on the funding agreements already in place between EIB and other managing authorities across the EU. Subsequent implementation of investment products of the HF (i.e., investments into UDFs) is identical as under Option 4 (HF with legal
subjectivity);
• suitable as a transitory structure facilitating the implementation
of JESSICA. After the end of the initial period, the HF can be
wound up, its mandate can be extended or the role of the HF
manager can be transferred to another institution.
Specific disadvantages of the separate block of finance option
• reduced possibilities of transfer of know-how and creation of expert capacities on the national level
• the fund cannot borrow financial sources on the market and EIB
does not invest into HFs which it is itself managing – which reduces the HF’s potential for achieving a leverage effect.
Option 4: Holding Fund with a legal subjectivity (independent
legal entity managed by EIB)
In a case the HF should be established with a legal subjectivity, we
recommend - based on a legal analysis and a comparison with commercial companies - that limited liability company (s.r.o.) be chosen
as its legal form.
The implementation structure proposed under this Option could potentially mirror the structure already established in Slovakia for the
implementation of the JEREMIE initiative. In the context of JEREMIE,
the Slovak Guarantee and Development Fund, Ltd. (SGDF), was established as a JEREMIE Holding Fund in the form of an SPV. The SGDF
is a subsidiary company of the Slovak Guarantee and Development
Bank (SGDB) and is managed by the Euroopean Investment Fund.
The managing authorities of several operational programmes provided resources in the form of grants to EIF and EIF is expected in turn
to invest these resources into the SGDF. The majority of voting rights
in SGDF is held by SGDB (99%) and remaining is EIF (1%). There are several decisions requiring unanimous voting. The managing authorities form, together with EIF representatives, the Investment Committee of the HF which legaly acts as a Supervisory Board of Ltd. SGDB
holds an observer position within the Investment Committee. The
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Executive Director of SGDF is a representative of the EIF. As a HF manager, EIF acts on behalf of SGDF within the limits of authorizations
given to EIF by the Investment Committee.
In a case of a direct assignment to EIB as per Article 44 of Regulation 1083/2006, the Holding Fund would be formed as an SPV with
own legal subjectivity and the form of a limited liability company.
The partners of this SPV would be the EIB and some of the national
institutions (e.g. SGDB, a.s.). Based on a funding agreement between the managing authorities and EIB (see Regulation 1828/2006 for
the obligatory elements of such a funding agreement), the managing
authorities would transfer OP resources to EIB with the purpose that
EIB subsequently enters with these resources as a partner into the
SPV. The OP resources form a large part of the basic capital of the
SPV. The remaining part of the SPV’s basic capital would be provided
by the relevant national institution. The funding agreement between the managing authorities and EIB would also stipulate that the
Investment Committee (or Investment Board) of the Holding Fund
consists of representatives of the managing authorities, the relevant
national institution and EIB but that the majority of voting rights is in
the hands of the managing authorities and/or the national institution
(e.g. SGDB, a.s.). The partnership agreement (or articles of association) which would be concluded between EIB and the national institution and which would form the foundational document of the SPV,
s.r.o., would specify that the main activities of the HF include one of
the activities mentioned in the § 2 paragraph. 1 letter b) or paragraph. 2 Act No. 483/2001 Coll. on Banks in the valid wording (further
only „Act on Banks“), or the acquiring of shares on the capital market
pursuant to a special regulation. Through this, the conditions for defining a company as a financial institution would be fulfilled.
The EIB, as the manager and executive of the Holding Fund would
have the right to dispose with the resources of the Holding Fund on
the basis of the funding agreement between EIB and the Slovak managing authorities and of the partnership agreement (articles of association) of the SPV. As the manager of the SPV, EIB would be implementing the financial instruments approved by the investment
committee (in which the majority of voting rights would be held by
members nominated by the managing authorities), which would be
equivalent to a board of trustees of an SPV in the sense of the Commercial Code. Among the basic tasks of the manager of the fund belongs also the preparation of an investment strategy, which would
be considered by the investment committee. The first version of the
investment strategy of the HF would be already part of the funding
agreement.
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The assessment of the investment strategy by the investment committee is important for the manager of the fund, not least from the
point of view of the authorization of the utilization of the structural
fund sources. Likewise, also the documentation related to the UDFs
selection process and the proposed operational agreements with the
UDFs would be prepared by EIB as the HF manager but the actual
decision would be always taken by the investment committee. The
main reason for this is that despite of the role of EIB as the HF manager, the ultimate responsibility vis-à-vis the European Commission as
regards the utilization of the ERDF resources rests with the managing
authorities.
In a case of proceeding through a Holding Fund with a legal subjectivity a possible disadvantage is only the complicated structure involving the Special Purpose Vehicle (SPV). The main reasons for utilization of an SPV are to prevent the creation of competition at the HF
level for national institutions, to facilitate transfer of know-how and
to create on the national level a structure which could serve for the
implementation of JESSICA also in the future. Although the structure under Option 4 is more complex than under Option 3, it would be
possible to utilize the experience with the implementation of JEREMIE where the basic division of responsibilities is already clearly defined.
European Commisssion – DG Regio
Financing
Managing
authorities
Investment committee – managing
authorities, experts
SPV/Holding Fund = st.institution + EIB
MANAGER
responsibility
EIB
Guarantees,Direct operations
SHDF
UDF 1
UDF 2
PROJECTS
63 (105)
Basic activities in the structure of the
implementation of the Holding Fund
Responsibilities of the manager of the Holding Fund
The main responsibilities of the Holding Fund manager include the
following:
a) pursuit and, where required, proposal for revision of the investment strategy of the HF; this includes conducting a process of
UDF selection, submission to the investment committee of recommendations for selection of UDFs and preparation and execution of operational agreements with the selected UDFs (subject
to investment committee approval);
b) monitoring of operations (investments into UDFs) in order to secure compliance with the applicable regulations; ,
c) reporting to the managing authorities, including on the basis of
data provided by projects to UDFs and by UDFs to HF (as provided for in the contractual documents);
d) treasury management of the funds held by the HF and not invested into UDFs.
Other tasks and responsibilities are to be specified in the prospective
funding agreement and the corporate documentation between the
partners of the SPV (articles of association).
Status of the investment committee of the HF
The investment committee of the HF would represent for the EIB the
main partner for strategic and operational questions in connection
with the management of the Holding Fund. The investment committee would consist from the representatives of the management
authorities contributing to the HF. Besides representatives of the managing authorities it could be strongly recommended to include in
the committee also experts on financial market instruments. The activity of the investment committee should be regulated by the funding agreement between the managing authorities and EIB and the
articles association of the HF-SPV. The decisions of the investment
committee should be focused mainly on:
- assessment of amendments to the investment strategy of the HF,
- assessment of calls of expressions for interest, UDF selection decisions and operational agreements as proposed to the investment
committee by EIB,
- regular (e.g. semiannual) assessment of progress of activities of
the HF-SPV and approval of reports describing the activities of
the Holding Fund (including e.g. assessment of the fulfillment of
output indicators at the level of UDFs and/or projects);
64 (105)
- approval of the costs for the management of the fund in connection with the services and activities executed for the present and
expected activities. The amount of eligible management costs is
capped by the Implementing Regulation 1828/2006 at an annual
average of 2% from the amount contributed to the HF.
Funding agreement
The funding agreement serves as a basis of the contractual relationship between the managing authority/authorities and EIB as the
manager of the fund. The legal basis for the funding agreement are
the General Regulation 1083/2006 and Implementing Regulation).
The managing authorities transfer resources to the EIB in accordance with Art. 44 of Regulation 1083/2006, letter c). The funding agreement should include:
-- definition of terms,
-- exact purpose of the HF,
-- specification of the contribution of the managing authorities
to the HF, its sources in the OPs and its intended use,
-- status of the investment committee,
-- description of the initial investment strategy and planning of
the HF, including the conditions of elaboration of an entrepreneurial plan of the SPV,
-- main elements of operational agreements to be entered into
between the HF and UDFs,
-- specification of activities and possibilities in relation to the
joint-investors.
A part of the financing contract should be
also annexes, which do include:
-- investment strategy and a proposal with respect to the elaboration of the entrepreneurial plan of the SPV,
-- treasury policy of the HF,
-- specification of the management costs and system of their
debit from the total amount contributed to the HF,
-- specification of the monitoring methods,
-- provisions on reporting about activities of the HF and audit of
the HF and its operations,
-- winding-up provisions and exit strategy in relation to the HF
itself.
65 (105)
Conditions and mechanism of financial flows
Operational programme resources would be contributed to the HF
on the basis of the funding agreement with the EIB. From the moment of the signature of the financing contract and transfer of sources to the transitory account of the EIB, EIB would hold the OP resources for and on behalf of the managing authorities. This means that
EIB would be legal owner of the resources but the managing authorities would retain beneficial ownership of them. As of the moment
of the investment of the resources into the basic capital of the SPV,
the SPV becomes the legal owner of the funds, EIB becomes the legal
owner of the commercial share and the managing authorities remain
beneficial owners of this commercial share. Consequently the SPV sources would lie at an account within EIB, an account of a commercial
bank (depository bank) or an account within a public institution (for
example the State Treasury). The place of the establishment of the account would depend on the managing authorities’ assessment of the
interest to be received on the resources, of the related risk of keeping
the resources in the given institution and of the cost connected with
the release of the sources for actual operations of the HF. The treasury options would be included in the funding agreement and it would
be up to the managing authorities to decide by way of an instruction
to EIB which treasury option should be selected and, if applicable,
which depository bank should be used.
-- Subject to approval of HF operations by the investment committee, the resources of the HF would be transferred to individual UDFs. The basis for the set up of the financial flows
from the HF to the UDFs would be the investment strategy of
the HF or the individual operational agreements.
Specific advantages of the HF-SPV option
1. Involvement of national institutions in the HF (e.g. through a minority stake) can help secure transfer of implementation knowhow, which would facilitate the sustainability of the management
of such a fund also after the expiration of the contract with the EIB;
2. Avoiding possible competition between EIB and national institutions for the management of the HF – here a national institution is
involved in the fund;
3. Creation on the national level of a structure (SPV) which could serve as a lynchpin for the implementation of JESSICA also in the future.
66 (105)
Specific disadvantages of the HF-SPV option
1. To establish the HF as an SPV requires the creation of a relatively complicated structure of relationships where various legislative
norms (European and national) have to be taken into account.
2. More time-consuming than the separate block of finance option.
5.4.Summary assessment of the advantages/
disadvantages of the individual
implementation options
JESSICA presents a potential of utilizing public financial resources in
a more effective way, achieving a revolving effect, and supporting
a broader scope of projects. On balance, we consider that it is useful
for the purpose of JESSICA implementation in Slovakia to establish
a Holding Fund, mainly for the following reasons:
1. achieving early absorption of OP funds (and acquiring space for
preparation and contracting of individual projects);
2. drawing on EIB’s know-how from implementation of JESSICA in
other Member States;
3. greater attractiveness for potential co-investors;
4. the strategic significance of the Holding Fund in that it can serve
as a coordinating entity for the individual UDFs and can serve also
in the future for establishing various UDFs with specific regional or
sector focus, subject to availability of funding.
On the basis of the above analysis, we suggest the option of a Holding Fund with legal subjectivity in the form of a limited liability
company managed by EIB (Option 4).
The only scenario where the added value of a holding fund might
not be, in our view, sufficient to warrant its creation is where the operational program resources available for JESSICA are limited to the
18 million euro pre-assigned for housing refurbishment and where
the decision is taken to utilize these resources directly through the
SHDF serving as a UDF. However, in such a scenario we would recommend that the Ministry of Finance is involved in facilitating the relationship between the managing authorities and the UDF so that financial engineering know-how is preserved at the level of the Ministry
of Finance and can be used in the future in the process of further
implementation of financial engineering instruments. Moreover, the
involvement of the Ministry of Finance is also important in view of its
role as the Certification Authority under the National Strategic Reference Framework.
67 (105)
As regards the possible competition posed by EIB as a HF manager to
national institutions, we consider that national institutions are better
equipped to perform the role of Urban Development Funds (dealing
directly with clients, ensuring representation of JESSICA in individual
cities) than the role of a Holding Fund. The only scenario where the
establishment of a HF under a national institution could be useful is
in our view the solution elaborated under Option 4, i.e. establishment
of the HF as an SPV of EIB and of the Slovak Guarantee and Development Bank, similar to the structure chosen for the implementation of
the JEREMIE initiative.
Assessment of the elaborated advantages/disadvantages of the
individual models of financing
Table 18 Comparative schemes of individual models:
Form of HF
Criterion
UDF – public
procurement
UDF – direct assignment to national institution
HF without a legal subjectivity (separate block of finance)
HF as an independent
legal entity (s.r.o.)
Commercial legal subjectivity
Possible leverage effect at
HF and/or UDF level
Confidence of private co-investors
HF manager rating
Flexibility of Financial Instruments
Innovative Approach towards financing urban development
ü
X
X
ü
limited
limited
ü
ü
limited
limited
ü
ü
n/a
n/a
HIGH
HIGH
ü
X
ü
ü
ü
limited
ü
ü
Investment Risk
Depends on the
Subject Awarded
HIGH
LOW
LOW
Know-how Transfer
X
X
limited
ü
Long-term Sustainability
Depends on the
Subject Awarded
ü
Possible transfer of the
HF manager role
ü
HF Credit Capacity
Depends on the
Subject Awarded
X
X
ü
ü
ü
ü
X
ü
X
ü
ü
X
Depends on the
Subject Awarded
MEDIUM
LONG
ü
X
ü
X
ü
X
HIGH
LONG
LOW
SHORT
LOW
MEDIUM
X
ü
ü
Set-up Simplicity
Reduced requirements on capacities of managing authorities
Crating of Goodwill
Competing with existing National Institutions
Risk of possible SF corrections
Duration of the implementation process
Capacities for SF implementation in place
Depends on the
Subject Awarded
HF – Holding Fund, SF – Structural Funds, X - No, ü - Yes
68 (105)
6.PROPOSAL OF INVESTMENT
STRATEGIES
6.1. Basic considerations
A proposal of an investment strategy for a JESSICA HF or UDF in Slovakia depends on the volume of resources from operational programs,
which could be allocated for the JESSICA scheme, and on the focus
and eligibility criteria of the priority axes and measures of the OPs
from which the resources are being allocated to JESSICA. The volume
of OP resources and the conditions attached by the OP to these resources influences the attractiveness of the Fund itself for possible
co-investors and the possibility of utilization of innovative financial
mechanisms. Therefore it is necessary to mention that the higher the
volume of the sources from the structural funds to JESSICA funds will
be, the higher will be also the potential volume of resources obtained on the market thanks to the leverage effect and the interest of
possible investors. In addition, a higher volume of resources in a JESSICA fund enables also a better variability and flexibility of financial
instruments within the implementation of JESSICA and reduces the
investments costs.
In our analysis of the possibilities of financial intermediaries at the
Slovak market we tried to identify the assumptions for a successful
implementation of innovative financing instruments. The basic identified instruments include:
- loans;
- guarantee schemes; and
- equity investments.
The first two instruments are typical for the sector of commercial
banks and enable financing of projects with a lower risk rate. The last
of the instruments is suitable for more risky projects All of the three
are suitable for utilization by an Urban Development Fund.
The biggest potential for a leverage effect consists in implementation of guarantee schemes with commercial banks. Within the category of guarantees it is possible to use individual guarantees,
provided for each project independently, or to provide portfolio
guarantees. Within individual guarantees the risk level of the client
and the project is assessed on a case-by-case basis and this determines also the level of the leverage effect and the price for the guarantee. Portfolio guarantees guarantee an existing portfolio of tar-
69 (105)
get projects for which a commercial bank is responsible. Based on
the risk investment strategy approved by the Investment Committee,
the Holding Fund may guarantee a part of the portfolio of the bank
with the relevant risk rating. Thanks to this guarantee the commercial bank could offer a further volume of resources for the target groups. The leverage effect in this case depends on the risk level which
the Investment Committee (nominated by the managing authorities)
agrees to accept. The risk level in turn depends on the requirement
for the investment´ repayments; therefore the leverage effect could
at the end render available further market liquidity, for example in
a doubled, but also a tentimes or multiple volume. There is an experience already with guarantees for housing loans. The portfolio guarantees depends on commercial banks´ portfolios, but the intent of
this proposal is to identify an option for instruments which can leverage efficiently funds available. To identify the relevance such an instrument for Slovak market and more detailed analysis of the market
possibilities should be undertaken by the manager of the Holding
Fund when elaborating of a concrete investment strategy based on
the volume of resources available for JESSICA implementation.
Possible co-investors into JESSICA funds can be expected to be focused on more risky investments; therefore the involvement of investors is to be considered more at the level of the UDF, depending
on the focus of the UDF. We see two options, better to say levels of
possible investors´involvment– level of HF and level of UDF. Some
of investors may join the scheme at the level of HF as a legal entity or entity itself may raise additional funds, e.g. through commercial loan (which is not the case if HF is block of funds only). Some of
the investors may prefer more concrete and specific investments at
the level of UDF. The details of the investment strategy are a topic
for discussion between the manager of the fund and the managing
authorities; the investment strategy has to be included in the contract through which the JESSICA fund is established.
Based on the analysis of the market needs a market gap of 9.3 bill
euro was identified in the area of financing of housing refurbishment
and a market gap of 2.3 bill euro in the area of projects of refurbishment of public buildings. The need for financing for complex refurbishment projects, broader urban regeneration projects and urban
energy projects is theoretically without limitations. The utilization of
innovative financial instruments could contribute on a large scale to
the improvement of the availability of financing for the target projects. The investment strategy would at the same time depend from
the concrete volume of the sources. As a starting point, we suggest
two scenarios of investment into urban development through the
JESSICA instrument:
70 (105)
-- In the first model we assume the availability of only 18 mill
euro from Operational Programs ROP and OPBR;
-- In the second case we assume additional resources to be
found either on the market (private capital fundraising) or
through an increased allocation of structural funds in the current programming period, new allocations in the new programming period, a possible loan from the EIB, etc.).
For both variants of the available resources we propose to utilize the
recommended implementation model of a Holding Fund with legal
subjectivity. It was recognized that in Slovakia there is no national institution readily fulfilling the definition of a financial engineering instrument capable of utilizing structural funds according to the targets
defined in the operational programs; moreover, the possibility of procurement of such an institution through a public order is time-consuming. An optimal solution enabling to accelerate the implementation
of JESSICA would be to utilize a HF through direct assignment to the
EIB. In light of discussions with representatives of ministries and in
light of the actual situation in the SR, the most viable solution appears to be the creation of a Holding Fund with a legal subjectivity under the responsibility of the Ministry of Finance SR (is a supra-sector
guarantee of instruments of financial engineering and has experience with the creation of similar models through the initiative JEREMIE). The greatest added value in the engagement of EIB as
a manager is the transfer of international know-how concerning the
implementation of projects and instruments which are in the member states considered as innovative and unknown at the market. In
the case of the SR the investment area is given – refurbishment of
existing housing, and is the most probably also the product – loan,
and also the relatively low available allocation – 18 mill euro. All these
assumptions represent limits on the possible sphere of application of
JESSICA in the 2007-2013 programming period. The already existing
experience with revolving financing of housing refurbishment in Slovakia means that the biggest relative potential for transfer of knowhow concerns the know-how of the application of rules related to the
functioning of financial engineering instruments in the world of EU
structural funds. The potential for transfer of know-how would be
larger in case where JESSICA investments could be realized in other
prospective areas of urban development, beyond housing. For this
reason the optimal approach in the first period would be to test the
functioning of the instrument JESSICA in the SR through the creation
of a full structure through the MF SR (HF managed externally by EIB),
and through execution of a pilot investment strategy in support of
refurbishment of existing housing through involvement of a national
institution as an urban development fund, namely the SHDF. Also in
this case it would be useful to consider the possibilities of EIB proviJESSICA EVALUATION STUDY - FINAL REPORT SLOVAKIA
71 (105)
ding technical assistance to the SHDF as the state fund does not have
experience with utilization of financial resources from the ERDF. Looking ahead towards the launching of new operational programs, the
existence of a JESSICA HF in Slovakia would create potential for using
ERDF resources by way of repayable investments in other areas of urban development.
Following consultations with the commercial sector it is possible to
conclude that the prospective volume of 18 mill euro (and the maximum prospective fees given by the 3% ceiling) is not interesting for
commercial banks to become involved with implementation of innovative financial instruments, even if blending of their own resources
with OP resources could lead to an improvement of the loan conditions for the final recipients. The limited volume of available resources also implies that there is only scope for one financial intermediary
(UDF). In this case it seems best to consider investing the OP resources through a public sector institution, namely to consider the possibility of involving the SHDF in the capacity of a UDF. All this has to
be done in line with the regulations on the utilization of resources
of the structural funds. But also in this case we do recommend that
a HF is created and that its manager prepares the investment strategy in which the conditions of financing envisaged to be provided by
a public-sector UDF are compared with the market conditions; the investment strategy should ensure that the JESSICA funds offer a product which fills the existing market gaps. From the point of view of
the project holders (beneficiaries of UDF financing), again taking into
consideration the limited volume of the resources available, it would
be possible to consider only the housing sector, the main focus being
on thermo-insulation of apartment buildings.
In case it is possible to obtain additional financial resources for the
implementation of JESSICA beyond the 18 mill euro, the possibilities
of utilization of innovative instruments are considerably broader. The
individual financial instruments that a UDF can provide are described above and include loans, guarantee schemes and equity investments. Loan instruments are the most straightforward, but beyond these, especially guarantee schemes could be utilized in the area
of housing refurbishment and thermo insulation. In the case of the
refurbishment of housing, the scope for guarantees is not very large
because the clientele is financially disciplined and the loan conditions from the side of commercial banks are accommodating, meaning
that practically each loan application complies with what the banks
require. Guarantee schemes could be therefore more effectively utilized in the area of municipal financing. The financial crisis had a negative impact on the budgetary possibilities of municipalities and
the majority of municipal development projects are currently finanJESSICA EVALUATION STUDY - FINAL REPORT SLOVAKIA
72 (105)
ced through loans. This is resulting in increasing indebtedness of the
whole sector, which is at the same limited by the ceilings set in national legislation. The frequently applied legal solution is to realize municipal development projects through commercial companies in the
ownership of municipalities. However, the guarantee mechanisms for
loans to these municipal companies are very limited. It is here that
we envisage space for the application of innovative financial instruments in the form of portfolio guarantees or individual guarantees.
In the case sufficient resources are available in the Holding Fund, it
is possible to consider also more complex projects of regeneration
of urban areas, brownfield revitalization etc. Such types of projects
can be financed through UDFs which are able to offer several financial instruments and thus can flexibly adapt to the needs of the final beneficiary. In this scenario UDF financing could be provided also
through equity investments where the UDF enters with the necessary investment into the project as a partner of the final beneficiaries.
This way, not only the project is financially supported but transfer of
know-how on management of commercial companies can be also
achieved, improving the effectiveness of the utilization of resources
and the long-term sustainability of the project. After a certain time,
the UDF tries to exit from his share in the project company by selling
this share on the market, which enables the return of resources back
into the UDF and their investment into new projects.
A model allowing for UDF equity participation in projects would be
ideal for the long-term development of the target projects. In any
case, the possibility of combining several financial instruments from
the side of the UDF depends on the development of the situation in
the financial market. Subject to demand, the UDF could align the investment portfolio in such a way that the momentary market gap
would be fulfilled.
Implementation of a HF with a broader investment strategy would
create space for the involvement as UDFs of various national institutions specialized on certain types of instruments (SHDF, SGDB etc.)
6.2. Typical projects in the housing sector
The specification of typical projects for the housing sector is a result
from the data and conclusions presented in the analyses of the demand side, which was a part of the Interim Report. On the base of
these data a typical residential building was defined (a possible loan
applicant). The scope of the project is proposed in three variants.
73 (105)
Applicant – typical residential
As a typical applicant, we could consider a residential building in original shape (without a previous reconstruction/renovation of common compartments of the building) with following characteristics:
Number of apartments:
24
Extent of an average apartment:
65,00 m2
Overall floor surface in the building:
1560,00 m2
Ownership:
private
Average consumption of heat for heating for one apartment: 27,18 GJ
Average consumption of heat for warm water:
11,92 GJ
Overall consumption heat of residential building for heating: 652,32 GJ
Overall consumption heat of a residential building
for warm water:
286,08 GJ
Overall costs of a residential building for the consumed heat: 17 163,34
euro/annually
(prices as of 2010)
Annual production of the maintenance fund: 6 213,90 euro/annually
Scope of projects
It is necessary to define some basic types of projects, as of the point
of view of their scope. This need results from the diverse economic situations of the possible applicants, meaning that the economic situation does not enable to all applicants realize a project of a complex
reconstruction of the residential building. These would need to proceed step by step and primarily focus on measures with the shortest
investment period.
In this respect we defined three variants of projects of reconstruction
of refurbishment of residential buildings as follows:
Variant A:
- exchange of windows and outside doors of common premises
- thermostatization and regulation of heating,
- reconstruction (and insulation) of the roof.
Variant B:
- complex reconstruction of heating distribution and warm water,
- reconstruction (and insulation) of the roof,
- insulation of the edge casing,
- thermal insulation of the cellar ceilings.
Variant C:
- complex reconstruction of heating distribution and warm water,
- reconstruction (and insulation) of the roof,
74 (105)
- insulation of the edge casing,
- thermal insulation of the cellar ceilings,
- measures with a low or zero impact on energy savings (reconstruction of elevators, conductors, electricity distribution in common premises, ...).
Realization costs of the individual variants in a typical residential building are estimated as follows:
Table 19 Investment costs of the individual variants in a typical residential building
Costs per App.
in euro
316
1 008
517
1 841
7 584
24 192
12 408
44 184
Measure - Variant B
Costs per App.
in euro
Overall costs
in euro
exchange of windows and outside doors of common parts
316
7 584
complex reconstruction of heating distribution and warm water
4 381
105 144
reconstruction (and insulation) of the roof
517
12 408
Insulation of the external walls
3 086
74 064
Thermal insulation of the cellar ceiling
419
10 056
Variant B – TOTAL
8 719
209 256
Measure - Variant C
Costs per App.
in euro
Overall costs
in euro
exchange of windows and outside doors of common premises
316
7 584
complex reconstruction of heating distribution and hot water
4 381
105 144
517
12 408
Insulation of the external walls
3 086
74 064
Thermal insulation of cellar ceiling
419
10 056
Measures with a low or zero impact on energy savings (reconstruction
of elevators, conductors, electric distribution in common premises
2 384
57 216
Variant C – TOTAL
11 103
266 472
Measure - Variant A
exchange of windows and outside doors of common parts
thermostatization and regulation of heating
Variant A – TOTAL
Overall costs
in euro
75 (105)
Energy savings and backflow
Besides the need, seeking solutions as regards the critical technical
status of the residential buildings, there is motivation to realize reconstruction projects of residential buildings, with the aim to achieve
economic-financial benefits (e.g. lowering operation costs or increasing the quality of living).
Crucial from this point of view are savings of operation costs in the
format of energy decrease – mainly heat consumption.
The following rates of heat consumption savings result from the above mentioned variants:
Table 20 Energy savings for the individual variants
Savings rate
Heat savings
Financial savings
%
GJ / annually
euro / annually
A
14,45%
135,64
2480,86
B
45,17%
423,91
7753,32
C
45,17%
423,91
7753,32
Variant
From the comparison of the savings and investment costs connected
with the individual variants it follows that the period of backflow of
the maintenance is around 17,8 year within the variant A, over 27 years within the variant B and over 34,3 years within the variant C. It is
clear that for paying for the loans used for the reconstruction, also additional sources of the inhabitants/owners of the apartments should
be utilized. The mentioned projects could not be realized only from
savings; the payments of the owners of the individual apartments
into the maintenance fund should be also made use of. The period
of repayment within these types of loans usually does not exceed the
period of 20 years (commercial banks and as well as the SHDF Announcement 650/2006 set a maximum repayment period on loans
for the refurbishment of residential buildings). Variant A corresponds
to the basic necessary interventions with a low administration price,
their impact is possible almost immediately, but the disadvantage
is the low impact on energy savings. Based on reference discussion
with the managing authorities of the ROP and the OPBR, they prefer
projects which achieve the highest energy savings. From this point of
view, variants B and C seem to be the most suitable.
76 (105)
Parameters of the product and their impact on the applicant
Based on a market research of relevant financial products, we indicatively suggest the following parameters of the proposed product:
Type of the product:
Interest rate:
Period of repayability:
Condition of repayment: Long-tem loan
4,5% p.a. fixed
10/15/20/25 years
constant installment of the capital
An assessment of the impact on the financial situation of the applicants was performed for product variants B and C. The results, shown
in the following table, indicate that from the point of view of a need
of increase of expenditures of the households for living, the most suitable variant seems to be variant B with a repayment period of a minimum of 20 years.
Table 21 Assessment of the impact of product on the financial situation of the applicant
period of repayment (years)
interest rate (% p.a.)
House
Investment costs
Apartment
m2
House
Annual repayApartment
ment of principal
m2
House
Monthly repayApartment
ment of principal
m2
House
Overal interest
Apartment
m2
House
Average annual interest Apartment
m2
House
Average monthApartment
ly interest
m2
House
Average anApartment
nual payment
m2
House
Average monthApartment
ly payment
m2
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
Variant B
10
15
4,50% 4,50%
209 256 209 256
8 719
8 719
134
134
20 926 13 950
872
581
13
9
1 744
1 163
73
48
1,12
0,75
51 791 75 332
2 158
3 139
33,20 48,29
5 179
5 022
216
209
3,32
3,22
432
419
18
17
0,28
0,27
26 105 18 973
1 088 791
16,73 12,16
2 175
1 581
91
66
1,39
1,01
20
4,50%
209 256
8 719
134
10 463
436
7
872
36
0,56
98 873
4 120
63,38
4 944
206
3,17
412
17
0,26
15 406
642
9,88
1 284
53
0,82
25
4,50%
209 256
8 719
134
8 370
349
5
698
29
0,45
122 415
5 101
78,47
4 897
204
3,14
408
17
0,26
13 267
553
8,50
1 106
46
0,71
Variant C
10
15
4,50% 4,50%
266 472 266 472
11 103 11 103
171
171
26 647 17 765
1 110
740
17
11
2 221 1 480
93
62
1,42
0,95
65 952 95 930
2 748
3 997
42,28 61,49
6 595 6 395
275
266
4,23
4,10
550
533
23
22
0,35
0,34
33 242 24 160
1 385 1 007
21,31
15,49
2 770 2 013
115
84
1,78
1,29
20
4,50%
266 472
11 103
171
13 324
555
9
1 110
46
0,71
125 908
5 246
80,71
6 295
262
4,04
525
22
0,34
19 619
817
12,58
1 635
68
1,05
25
4,50%
266 472
11 103
171
10 659
444
7
888
37
0,57
155 886
6 495
99,93
6 235
260
4,00
520
22
0,33
16 894
704
10,83
1 408
59
0,90
77 (105)
Savings of heat after
reconstruction
Annual savings of
costs for heat
Average monthly savings of costs for heat
Annual production
of maintenance fund
before reconstruction
Monthly production
of maintenance fund
before reconstruction
Resources available
for repayment (80%
of maintenance fund
+ savings of heat)
Resources available
for repayment (80%
of maintenance fund
+ savings of heat)
Missing resources for
repayment (need of
increase of maintenance fund production)
Missing resources for
repayment (need of
increase of maintenance fund production)
House
Apartment
m2
House
Apartment
m2
House
Apartment
m2
House
Apartment
m2
House
Apartment
m2
House
Apartment
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
424
18
0,27
7 753
323
4,97
646
27
0,41
6 214
259
3,98
518
22
0,33
12 724
530
m
8,16
8,16
8,16
8,16
8,16
8,16
8,16
8,16
House
Apartment
1 060
44
1 060
44
1 060
44
1 060
44
1 060
44
1 060
44
1 060
44
1 060
44
m2
0,68
0,68
0,68
0,68
0,68
0,68
0,68
0,68
House
Apartment
13 381
558
6 249
260
2 683
112
543
23
20 519
855
11 436
477
6 895
287
4 171
174
m
8,58
4,01
1,72
0,35
13,15
7,33
4,42
2,67
House
Apartment
1 115
46
521
22
224
9
45
2
1 710
71
953
40
575
24
348
14
0,71
0,33
0,14
0,03
1,10
0,61
0,37
0,22
GJ/year
EUR
EUR
EUR
EUR
EUR/year
2
EUR/month
EUR/year
2
m
2
EUR/month
78 (105)
Overall results
For the product variants B and C predictions of overall achievable results were elaborated for various scenarios of financing.
For the financial scenario 18M these predictions have been based on
following assumptions:
• 25 years of providing the product
• Reinvesting of the repayable capital
• Reinvesting of 60% of interest earnings (40% interest earnings for
the maintenance of the fund)
Results of the projections are illustrated in the following tables:
Table 22 Overall results of implementation of variants B and C within financial scenario 18M
Overall results of the product (Variant B) for the financial scenario (18M)
Period of repayability
Years
10
15
20
25
Invested sources
euro
139 783 008
126 181 368
113 416 752
102 326 184
buildings
668
603
542
489
16 032
14 472
13 008
11 736
m2
1 042 080
940 680
845 520
762 840
GJ/year
283 149
255 597
229 740
207 275
Number of supported projects apartments
Energy savings
Overall results of the product (Variant C) for the financial scenario (18M)
Years
10
15
20
25
Invested sources
euro
139 631 328
126 041 256
113 250 600
102 058 776
buildings
524
473
425
383
12 576
11 352
10 200
9 192
m2
817 440
737 880
663 000
597 480
GJ/year
222 111
200 493
180 147
162 344
Energy savings
79 (105)
For the financial scenario 36M (18M ERDF + 18M commercial banks)
these predictions have been assumed on the following assumptions:
• 25 years of providing the product
• Reinvesting of the repayable capital
• Reinvesting of 60% of interest earnings from the ERDF sources
(40% interest earnings of the ERDF for the maintenance fund)
• Interest earnings from the sources of commercial banks are an
income of the commercial banks without a commitment of reinvesting within the product.
Results of the prediction are summarized in the following table:
Table 23 Overall results of implementation of variants B and C within financial scenario 36M
Overall results of the product (Variant B) for the financial scenario (36M)
years
10
15
20
25
Invested sources
euro
229 344 576
208 418 976
187 702 632
169 078 848
buildings
1 096
996
897
808
26 304
23 904
21 528
19 392
m2
1 709 760
1 553 760
1 399 320
1 260 480
GJ/year
464 567
422 180
380 216
342 491
Energy savings
Overall results of the product (Variant C) for the financial scenario (36M)
years
10
15
20
25
Invested sources
euro
229 165 920
208 114 632
187 596 288
168 943 248
buildings
860
781
704
634
20 640
18 744
16 896
15 216
m2
1 341 600
1 218 360
1 098 240
989 040
GJ/year
364 533
331 047
298 408
268 737
Energy savings
80 (105)
6.3. Typical projects in the public sector
Projects to be supported in the public sector should be in the first
phase of the implementation primarily focused to reconstruction
of public buildings (e.g. mainly buildings which are in ownership of
public administration and self-administration).
Project identification
A typical applicant could be identified as a city with more than
10 000 inhabitants. For the purpose of identifying a typical project,
we have performed a calculation based on average figures for public
buildings.
Table 24 Average cubature of public buildings according to the purpose of use
Purpose of Use
Number of Buildings
Schools
Trade and Services
Health Care
Culture
Administration
Accommodation
Sport
Other
TOTAL
* weighted average
6 824
181
1 268
494
2 461
1 041
118
2 784
15 171
Cubature of Buildings / m³
57 795 527
771 383
15 173 721
3 027 318
14 032 953
10 072 778
734 839
11 892 755
113 501 274
Average Cubature / m³
8 469
4 262
11 967
6 128
5 702
9 676
6 227
4 272
7481 *
Resulting from data in the previous table we set up on the cubature of
an average building in the volume of 7 481 m3.
For such a volume the costs for a complex reconstruction correspond to
the amount of 269 316 euro. (considering average unit costs on volume
of 36 euro/m3).
A typical project will include following measures:
• Reconstruction of roof
• Thermal insulation
• Exchange of doors and windows
• Thermostatization and adjustment of heating system
• Reconstruction of electrical installations
• Reconstruction of heat resource (RES based if appropriate)
An average heat savings rate after realization of the mentioned measures is approximately 40%. This figure for a typical building represents
a saving of 593,57 GJ / annually. In financial terms it is representing a saving of 10 856 euro / annually, which implies a payback period of approximately 25 years.
81 (105)
However, these figures do not include electricity consumption savings,
which could have a considerable contribution to shortening the payback period. As the electricity consumption depends mainly on the
consumption of used appliances (which are not a part of the reconstruction), only informative ratio of the savings from lighting may be estimated. Regarding relevant experiences, it is possible to achieve 30% - 40%
savings of electricity consumed for lighting by exchange of luminaries
and light sources. Due to not existing separate measurement of electricity consumption for lighting and other devices, the exact values of saved electricity may be only roughly estimated, For the typical building
this value may vary from 13 200 kWh/year up to 17 600 kWh/year. This
represents a cost saving from 2 200 euro/year up to 2 900 euro/year. As
result, the payback period may shorten to approximately 20 years.
6.4. Projects of integrated energy strategies
Integrated energy strategies (IES) represent an interrelated set of projects at the given level of administration (e.g. city, administrative districts) realized by various investors. The coordinator of these projects
is a subject of local administration as these projects should have impact on all areas of activities of cities and municipalities.
Project examples
It is obviously difficult to identify “typical projects” for this area, because IES must respect local conditions and specificities.
For better understanding we introduce a couple of possible concepts
of IES implementation.
Waste management – ecological transport
The objective of projects in this area could be the solution of problems connected with processing of biological decomposition of communal waste in connection to emission decrease from local / regional
transport. The principle of combination of several projects is consisting in the utilization of the outputs of one of the projects, as inputs
of another project. In this particular case, there could be a combination of following projects:
Set-up of a centre for management /separation of waste
• input: waste produced on the territory of a city
• output: waste utilized for energy production
Set-up of a bio-gas station
• input: waste energetically utilized
• output: bio-gas
82 (105)
Reconstruction of a carriage stock of an operator for the utilization of
bio-gas
• input: bio-gas
• output: cheaper and more environment-friendly transport
The main investors will be in most of the cases private enterprises
but the realization of such interlinked projects does require coordination from the side of the municipality.
Waste management – central heat supply
This example is similar to the previous one. The difference is in the
utilization of bio-gas. The following combination of projects is suggested:
Set-up of a centre for management /separation of waste
• input: waste produced on the territory of a city
• output: waste energetically utilized
Set-up of bio-gas station and co-generating unit
• input: waste energetically utilized
• output: heat, electricity
Reconstruction of a central heat source, taking into consideration the
delivery from the bio-gas station
• input: heat from the bio-gas station
• output: cheaper heat for citizens
The main investors will be in most cases private enterprises but the
realization of such interlinked projects does require coordination
from the side of the municipality.
Due to novelty and long project preparation of such proposed approach, no case studies from Slovakia can be identified at this stage.
For illustration of the concept and its potential results, we present the
following examples. These were realized in Sweden within the Initiative of the Swedish Government and Swedish Industry SymbioCity.
83 (105)
Augustenborg, Malmö
Sustainable makeover of an urban district
Augustenborg in Malmö is a prime example of how to give an urban
district a successful sustainable makeover. This 1950s housing and industrial estate owes its upgrade to recurrent flood damage that convinced planners to create an eco-suburb based on efficient water systems.
Improved water management
Augustenborg is a water and energy planner’s dream. An open surface rainwater runoff system, including canals, ponds and green roofs,
has removed the threat of flooding. And housing renovation and improved insulation has cut energy consumption by 35%.
Multi-purpose green roofs
Augustenborg also boasts 9,000 m2 of grass-covered roofs – a figure
few other places can match. Green roofs offer multiple advantages.
They help to prevent flooding by curbing rainwater run-off and also
clean the air, increase biodiversity and provide energy-saving insulation.
Multi-purpose solar energy
Solar power in Augustenborg ranges from flat-plate solar collectors
that heat water to photovoltaic cells designed as sunshades for office
buildings. Solar panels are expensive and it makes economic sense to
use them for multiple purposes.
A new solar power technique is also on show in the shape of a hybrid
panel combining power generation and heat supply - a technology
developed by the Faculty of Engineering at Lund University.
Waste and recycling
Augustenborg recycles 65% of its household and school waste. The
eco-suburb was an early starter in separating food waste and using
it for compost. Today, the municipality collects food waste for use by
energy utility E.ON to produce biogas.
Source: http://www.symbiocity.org/en/Cases/Test-case-1/
84 (105)
Borlänge municipality
An industrial centre going green
Founded on a long industrial tradition of steel and paper production,
the municipality of Borlänge in central Sweden is turning over a green leaf. The city recycles 90% of its waste and boasts an innovative
district heating system fuelled by renewable energy and waste heat.
Public-private partnership with a shared vision
Home to major manufacturers like steel producer SSAB and paper
company Stora Enso, Borlänge is also the headquarters for the Swedish Road Administration and national railway agency Banverket. Local policymakers are avid sustainability advocates and have linked up
with private business to introduce a raft of green initiatives.
How to benefit from a downtown steel mill
Together, the municipality and local business have designed an energy system that makes maximum use of waste heat. The main partners
are energy company Borlänge Energi (which operates the municipality’s district heating and waste management systems and supplies
green electricity), SSAB Tunnplåt and Stora Enso Kvarnsveden. The
trio share advanced systems for producing energy from waste heat
and steam and for water and air purification.
District heating reduces carbon emissions
Recovering waste heat and using biofuel to power the district heating grid cuts CO₂ emissions by 115,000 tonnes (23,000 according to
Swentec) compared to oil-fired alternatives. Municipal energy company Borlänge Energi operates the Bäckelund power station, which
generates district heating from a combination of waste incineration
and industrial waste heat.
Fågelmyra waste plant produces biogas and compost
The Fågelmyra waste management plant produces biogas and biocompost from waste and also separates incinerable waste for district
heating production. The facility sorts all types of household refuse,
as well as packaging, electronic and other waste arising under EU
producer responsibility legislation. The plant also has a landfill area
for residual waste and ash.
Biogas and compost plant
Fågelmyra also has a separate biogas and compost plant that can
handle 9,000 tonnes of waste every year. It processes food and other
compostable waste from private households, industrial kitchens and
restaurants in the Falun and Borlänge municipalities.
85 (105)
The plant minimizes the amount of waste sent to landfill. It sells biocompost for use in gardens and agriculture and biogas for heating,
power generation and vehicle fuel. Borlänge Energi owns the Fågelmyra facility and operates it jointly with Falun municipality’s traffic
department.
Source: http://www.symbiocity.org/en/Cases/Borlange/
86 (105)
7. PILOT PROJECT / CASE STUDIES
This part of the Final Report is connected to the allocation of typical
projects in the areas of the refurbishment of housing and the renovation of public buildings. The goal is to compare the parameters of the
typical projects described above with real existing potential projects
in the mentioned areas.
7.1. Housing sector
In the area of the refurbishment of housing stock we have identified
as a potential pilot project a residential building with the following
parameters:
Locality:
Bratislava
Age/Year of flat inspection:
25/1985
Building construction:
panel
Number of apartments:
48
Overall floor surface:
3298,96 m2
Floor surface of the common utilities:
Annual heat consumption:
1423 GJ
Annual contributions to the of the maintenance fund:
Building management:
253 m2
2163 euro
Association of apartment Owners
Certain partial measures have been already realized in the house:
• Exchange of windows in the apartments (provided for by the individual owners).
• Regulation of the heating and warm water distribution.
• Reconstruction of the roof.
Content of the project
At the present the owners do have interest in the realization of
further measures which would contribute to the improvement of the
technical condition of the building, as well as to a decrease of energy
consumption. For this reason they have prepared a project which includes the realization of the following measures:
•
•
•
•
Insulation of the periphery walls and balconies,
Removal of systemic defects of balconies,
Exchange of windows in the common utilities,
Exchange of glass stuffing on each floor.
87 (105)
The overall costs for the realization of the project in the mentioned
scope are within the project documentation estimated in the amount of 177 696 euro, e.g. 3 702 euro/apartment. The assumed length
of the realization period is 16 weeks.
The most important economic effect of the proposed project would
be the savings in energy consumption. The decrease is projected at
about 448 GJ/year, which represents a 31,5% savings constant. In financial terms this saving represents an asset of 8 194 euro/year for
the building as a whole (at the prices of 2010).
The comparison of the costs and of the financial amount saved shows
that the pure backflow period of the investment is 21,7 years.
Project process – Case Study
For the realization of the proposed project it is of course necessary
to secure the financing. According to the legislation in force, a signature of a loan agreement for a multi-apartment house requires the
agreement of a two third majority of the owners. Such an agreement
is mainly preceded by a market inquiry by the authorized representative of the association of apartment owners or the manager of the
building house. The apartment owners in the relevant house then
mainly approve the submission of the application for a concrete loan
product with clearly defined conditions (amount, repayability, bank
rate, form of guarantee).
After the signature of the loan agreement the selection of the supplier of the construction work follows and a contract is signed for
the construction works, with clearly defined conditions. As regards
financing, mainly the conditions of the cover of invoices are important. Under this type of loans (specific investment loan) the invoices
are usually distributed directly by the bank, based on the submitted
documents.
Based on methods usual within the submission of loans of this type,
it is possible to expect following formal requirements of the bank to
the applicant:
• Administration of a common account in the financing bank,
• Sustainability of the owners structure,
• Sustainability of the contributions to the maintenance fund (as
these contributions are required by law, financial discipline of flat
owners is considered in first place),
• Description of the project;
• Approval of a two third majority of owners with the investment
activity, the loan application and the guarantee to be provided (at
the present usually an insurance pledge and the establishment of
a standby right for the assets of the maintenance fund).
88 (105)
The whole process of the preparation of financing in the case of the
identified pilot project could be illustrated through the following
time schedule. This time schedule takes into consideration the actual
state of the preparation of the project as well as the criterion of approval by the owners, based on which a relatively fast process of decision and approval could be assumed.
Time plan
Time plan
1
week
2
3
4
5
6
7
8
9 10 11 12 13 14
Market inquiry
Pre-discussion of the application
With the selected bank
Assessment of bonity of the applicant
Preliminary offer of the bank
Approval of the investment
and the loan application by
a 2/3 majority of owners
Submission of the loan application
Siignature of the loan agreememnt
Selection of the supplier
Signature of the work contract
Realization of the investment
Payment request
Assesment of the payment request
Invoice cover
- activity of the bank
- document of the bank
- activity of the applicant
- doument of the applicant
The time chart shows that in the case of a pre-prepared project, the ensuring of financing is relatively
The time chart shows that in the case of a pre-prepared project, the
quick. In general, the longest part of the whole process is the decision-making on the side of the
ensuring
of financing
is relatively
In general,
thea longest
association of apartment
owners about
the realization
of thequick.
investment
itself and
follow uppart
market
of
the
whole
process
is
the
decision-making
on
the
side
of of
thethe
assoresearch and from this resulting selection of the bank. Other time consuming stage
project
preparation is a selection
of contractor
and preparation
of the
contractoffor
signature. This
ciation
of apartment
owners about
thework
realization
thea investment
results from the need itself
of several
activitiesup
(request
quotations,
submission
of quotations
and a follow
marketfor
research
and from
this resulting
selec-and
assessment of them, negotiations with selected supplier on contact conditions) which will be not
tion of the bank. Other time consuming stage of the project preparaalways fully under control of the Association of Apartment Owners.
tion is a selection of contractor and preparation of the work contract
In the case of the pilot project
it could beThis
expected
the the
signature
loan activities
agreement(requwould be
for a signature.
resultsthat
from
need of
of the
several
realized within five weeks from the date of approaching the selected bank.
est for quotations, submission of quotations and assessment of them,
Based on economic characteristics
of the
investment
activity
proposed
in the pilot
project
negotiations with
selected
supplier
on contact
conditions)
which
will the
Association of Apartment Owners seem to be ready to utilize the sources obtained through the energy
be not always fully under control of the Association of Apartment
saving consumption, as well as up to a certain level to increase the contributions in the maintenance
fund in such a way thatOwners.
these sources together cover the payment for the loan. The owners currently
prefer a loan with period of maturity longer than 15 years so that the repayment does not significantly
In the case of the pilot project it could be expected that the signature
affect their living standard.
For the purpose of repaying the loan, the resources saved on the consumed energy are offered in a
form of contributions into the maintenance fund from the individual owners. The higher contributions
JESSICA into
EVALUATION
REPORT SLOVAKIA
89 (105)
the fundSTUDY
would- FINAL
be compensated
for the individual owners through decreased payments
for the
delivered energy.
of the loan agreement would be realized within five weeks from the
date of approaching the selected bank.
Based on economic characteristics of the investment activity proposed in the pilot project the Association of Apartment Owners seem
to be ready to utilize the sources obtained through the energy saving
consumption, as well as up to a certain level to increase the contributions in the maintenance fund in such a way that these sources together cover the payment for the loan. The owners currently prefer
a loan with period of maturity longer than 15 years so that the repayment does not significantly affect their living standard.
For the purpose of repaying the loan, the resources saved on the consumed energy are offered in a form of contributions into the maintenance fund from the individual owners. The higher contributions into
the fund would be compensated for the individual owners through
decreased payments for the delivered energy.
For the pilot project financed through a loan product with the parameters mentioned in the previous part, we could consider the following increase of costs:
Maturity 10 years:
2346 euro/apartment for 10 years
e.g. average 235 euro/year/apartment
Maturity 15 years:
1809 euro/apartment for 15 years
Maturity 20 years:
1280 euro/apartment for 18 years*
* as of the 19th year the resources
from energy savings are sufficient for
the repayment
Maturity 25 years:
908 euro/apartment for 17 years*
* as of the 18 year f the resources from energy savings are sufficient for the repayment
Through testing of the acceptance of the proposed product for the
owners of the house as proprietors of a potential pilot project it was
discovered that their preferences and economic situation are best suited by the variant with 15 years maturity period.
90 (105)
7.2. Public buildings
In the area of reconstruction of public buildings we have identified
as a pilot project the reconstruction of the sports hall in the town of
Malacky. This is a town in the Bratislava region, which as a whole has
limited allocations of resources from the structural funds.
Characteristics of the applicant project
The city is located in the Western part of Slovakia and is situated
within the center of the South part of the Záhorská lowland.
Malacky is an important economic, administrative and cultural center
of the Dolné Záhorie. The area of the town Malacky as delineated by
the land registry borders is 23,2 km2. The town had 18 165 inhabitants as of 31 December 2008.
As regards energy consumption of the sports facility, several factors
have an impact, for example atmospheric conditions, level of population of the building, opening hours and their utilization within the
day, the level of the technological equipment, etc.
91 (105)
The city is located in a warm climatic area, in a warm and gentle dry
district with a gentle winter. The average annual temperature is over
9°C. The average January temperature does represent -1°C and July
+20°C. The annual precipitation amount does represent 600 - 650
mm.
The highest share of energy consumption of urban facilities in Malacky is represented by buildings and heating consumption accounts for
the largest part of energy consumption.
The sports hall was built in 1989 and came into operation in 1990.
The building is located in the centre of Malacky. Since construction
the sports hall did not undergo any important construction changes.
The building is in the ownership of the city and its operator is a contributory city organization.
As the following table shows, the sports hall does represents the highest share in the consumption of natural gas used for the production of heat in public buildings in Malacky.
Table 25 Consumption of natural gas - buildings
Localization of consumption of natural gas Purpose of consumption
Primary energy
MWh/year
Share on the overall consumption of natural gas
City Center of Social Services
Cooking
307,685
8,67%
Svitanie
Heating
35,444
1,00%
Cinema
Heating
129,783
3,66%
Cultural House, wedding hall
Heating
53,079
1,50%
Municipal Office
Heating, warm water
977,642
27,54%
Sports hall
Heating, warm water
1 122,292
31,62%
Elementary school, Záhorácka
Cooking
8,817
0,25%
Elementary school, Štúrova
Cooking
13,557
0,38%
Elementary school, Dérera
Heating, warm water
290,466
8,18%
Kinder garden, Kolárova
Heating, warm water, cooking
328,090
9,24%
Kinder garden, Bernolákova
Warm water, cooking
52,486
1,48%
Kinder garden, Hviezdoslavova
Heating
187,296
5,28%
Kinder garden, Štúrova
Warm water, Cooking
42,618
1,20%
3 549,254
100,00%
Overall consumption of natural gas
92 (105)
Similarly, in terms of energy consumption, the sports hall consumes
the highest amount of all public buildings:
Table 26 Share of division of electrical energy according to the consumption locality
Consumption of electric energy
Buildings
Sports hall
Elementary schools
Kinder gardens
Cultural facilities
Municipal Office
Social and other facilities
Public lighting
Electric energy TOTAL
Primary energy
MWh/year
2 355 460
779 910
363 198
183 812
133 563
614 656
280 321
2 308 943
4 664,403
Share
%
50,50
16,72%
7,79%
3,94%
2,86%
13,18%
6,01%
49,50%
100%
Content and contributions of the project
Taking into consideration the above facts, the city of Malacky elaborated an energy audit of the sports hall with the objective to identify
possible measures for lowering the costs related to the consumption
of energy in this building.
Several measures have been proposed, as summarized in following
table:
Table 27 Investment costs of proposed measures
Measure
Price in euro
with VAT
Building constructions (thermo-plaster, exchange
of windows, exchange of glassed walls )
252 607
Reconstruction of the heating system
93 953
Reconstruction of the system of preparation of warm water
25 636
Reconstruction of the air engineering
27 187
Lighting
21 639
TOTAL
421 022
93 (105)
Through the proposed measures, the following energy savings (in
terms of natural gas and electricity) could be achieved:
Table 28 Results of the proposed measures
Energy savings
Savings EE
Costs savings
GJ/year
kWh/year
EURO/year
Building constructions (thermo-plaster, exchange of windows, exchange of glassed walls )
702
0
7 402
Reconstruction of the heating system
822
0
8 668
Reconstruction of the system of
preparation of warm water
128
0
1 348
Reconstruction of the air engineering
507
66
5 427
Lightning
0
11 519
1 847
TOTAL
2 158
11 585
24 692
Measure
The mentioned savings represent annually 24 692 euro, which considering the investment cost of 421 022 euro implies a simple backflow
period of 17 years.
Besides the economic benefits the realization of the pilot project would also have significant environmental contributions. The decrease of the consumption of natural gas and electricity would lead to
a decrease of emissions CO2 in more than 150 tons annually.
Project financing
Within the financing of a pilot project through the proposed loan
product, we do not assume any cardinal problems. The city of Malacky as a subject of public administration represents for the banks
a client with good financial standing and typically would not have
a problem with the acquiring of loan financing.
A very positive financial aspect of the project is the fact that the main
part of the loan repayments (principal and interest) is possible to be
financed from the amount saved on energy, with a minimum negative impact on the budget of the city:
As regards the concept of an assignment of the loan, the loan could
be offered on the same terms as a commercial investment loan or on
preferential conditions.
94 (105)
8.ROADMAP OF THE
IMPLEMENTATION OF THE
ACTION PLAN OF JESSICA
IN THE SLOVAK REPUBLIC
Action plan of implementation
In the following chapter of the Final Report, we would like to propose individual steps which we consider necessary for successful implementation of the financial instrument JESSICA in the Slovak Republic.
Together with these steps we are proposing an Action Plan for the
individual actions necessary for a successful implementation of the
financial instrument. We try to define the individual steps as precisely as possible, including the key players responsible for the individual
actions. The main activities could be divided into two areas:
Action Plan of JESSICA implementation
Activities which need to be realized before the estabActivities which need to be realized after the establishment of the implementation structure
lishment of the implementation structure.
Activities which need to be realized before the
establishment of the implementation structure:
Among the main activities geared towards a future set up of a transparent and effective implementation structure of the financial instrument JESSICA we propose:
-- Decision about changes within the operational programs most
likely to provide contributions into JESSICA funds (ROP and
OPBR), which would also lead to a project orientation of Integrated Strategies of Development of Urban Areas in such a way
that within refurbishment of housing, also projects which do not
fulfill the at present rigid conditions of the OP would become eligible. A decision about changes within other possible OPs.
-- Decision about changes in the OP ROP and OPBR, in such a way
that the indicative financial allocations are clearly defined and
obligatorily assigned in favor of the financial instrument JESSICA.
Decision about an allocation of additional financial sources from
other sources (state budget, sale of emissions, other operational
programs, etc.)
95 (105)
-- Elaboration of an implementation model in accordance with
structural funds rules, covering mainly the evaluation and control competences of managing authorities.
-- Decision of the managing authorities on the implementation
model and on a transfer of financial allocations for utilization
within the financial instrument JESSICA.
-- Process of selection of the UDF or HF manager (depending on
the implementation Option chosen).
-- Negotiation and signature of the funding agreement with the
UDF/HF manager, including the investment strategy and a description of the rules on the assessment and control of projects
and fulfillment of the output indicators.
-- Establishment of the SPV between EIB and a national institution,
if needed.
Activities which need to be realized after the
establishment of the implementation structure:
-- Transfer of OP resources to the HF or UDF (depending on the implementation Option chosen).
-- Commencing the activity of the HF or UDF, including first investment committee meetings.
-- Dissemination of information on the focus of the financial instrument JESSICA among the public, potential recipients of financing and potential UDF managers (if relevant).
-- Preparation of financial products, acceptance of first project applications.
Comments and explanations on the proposed activities
Decision about changes within the operational programs most likely to provide contributions into JESSICA funds (ROP and OPBR), broadening the range of possible housing refurbishment projects. Decision about changes within
other possible OPs.
In the actual set up of guidelines in the OP ROP and the OPBR, which would be the most likely contributors of resources for investment through
the financial instrument JESSICA, the possible utilization of financial tools
is rigidly restricted to complex refurbishment of residential buildings
through the Measure “Integrated Strategies of the Development of Urban Areas”, where the realization of construction interventions is subject
to conditions including an elaboration of an integrated strategy, selection
of targeted urban areas (fulfilling further conditions concerning the number of inhabitants) and realization of other measures under the relevant
Operational Programs in the same urban area. The application of these
rules in their present form would mean that the scope for possible application of JESSICA would be restricted to a limited number of residential buildings, meaning a significant restriction on the potential demand
96 (105)
and on the potential take-up of resources. Thanks to this Evaluation study, the representatives of the managing authorities have been informed
about possible changes and they have expressed favorable attitudes towards introducing such changes in the future in order to facilitate the implementation of the financial instrument JESSICA.
Based on the present knowledge, it appears that only two Operational
Programs (ROP and OPBR) are ready to make financial allocations into
funds established as part of the JESSICA mechanism. However, these
funds could be utilized only for the support of the segment of the refurbishment of housing. Without additional financial contributions from these or other OPs, other possible segments of urban investment covered in
this study – refurbishment of public buildings, integrated energy strategies, etc. – could not be supported. Based on political will and a decision
to support a broader range of investments in sustainable urban development, it would be necessary to incorporate appropriate changes into relevant Operational Programs, e.g. into the OP CEG in the case of a decision to finance projects for revitalization of brownfields.
Decision about changes in the OP ROP and OPBR, in such a way that the indicative financial allocations are clearly defined and obligatorily assigned in
favor of the financial instrument JESSICA. Decision about an allocation of additional financial sources from other sources (state budget, sale of emissions,
other operational programs, etc.)
Within the Operational Programs there is no fixed allocation which would
be available in favor of the financial instrument JESSICA. It is generally assumed that within the ROP and the OPBR the support would be offered
in favor of refurbishment of housing. But, there are no specific amounts
for this purpose as well as no rules for their calculation. As these numbers
are important for any modeling of a possible implementation structures,
it would be useful that they are mentioned in the relevant Operational
Programs.
Additional sources of financing could be also utilized in favor of an increase of resources for the refurbishment of housing or for additional urban
development investments through the financial instrument JESSICA. As
mentioned above, however, without clarified financial allocations, without knowing the origin of finances and without knowing the conditions
of the provider of financial sources, it is difficult to propose and simulate any investment strategy for other areas besides refurbishment of housing. For example, if resources for JESSICA come from carbon emissions
sales, this means that the resources be invested in certain specific types of
projects (aiming at the highest possible CO2 savings) which may be different from those that can be supported with resources of the state budget or other Operational Programmes. In a case of a decision to activate
JESSICA in the SR, it would be necessary at this stage to determine the
97 (105)
exact amount and source of the allocations as this has significant impact
on the preparation of investment strategies for different target areas. During the preparatory process of the Final Report, only allocations from the
ROP and OPBR were preliminarily confirmed.
Elaboration of an implementation model in accordance with structural funds
rules, covering mainly the evaluation and control competences of managing
authorities.
The individual OPs include main rules for the selection and assessment
of the supported projects. During this step it would be suitable to adjust
the concept of the selection of the most probable types of projects – projects in field of housing refurbishment (according to the concept of the
selection process of the SHDF, or commercial banks), so these procedures can be accepted by the managing authorities. Otherwise it could happen that after the signature of the funding agreement from the side of
the MA, some regulations would be incorporated, which could complicate the functioning of the whole structure. Based on discussions with
the present beneficiaries of non-repayable financial support, the present regulations within the OP’s are complicated and administratively
demanding. For example, it is very difficult to implement changes in the
projects after their approval, even if the changes could not be anticipated in advance but the need for them becomes clear only when the realization of individual construction operations is to be starting. The actual
procedures of functioning of repayable financial instruments provided by
JESSICA funds must be simple, effective, and comprehensible. The reason
is that they should be equally attractive at the market as similar tools offered by commercial banks and they should not burden potential clients
with a package of bureaucratic requirements.
Decision of the managing authorities on the implementation model and on
a transfer of financial allocations for utilization within the financial instrument JESSICA.
One of the crucial steps needed for starting the process of practical preparation of the implementation of the JESSICA instrument. The decision
would be related to the MA of the ROP and the OPBR or other managing
authorities if they would be also contributing to JESSICA funds.
In the case of a later accession of whatever other Operational Program
to the financial instrument JESSICA (i.e. allocation of some resources into
JESSICA funds), the conditions of such a transfer would have to be negotiated and potentially necessary changes to the respective OP would
need to be considered, including the question whether EC approval is necessary.
98 (105)
In case a Holding Fund is established, the transfer of additional funds for
JESSICA can be expected to be easier than in the scenario where managing authorities enter into agreements with UDFs directly.
The choice of the implementation option will determine the exact further
steps. In general, the pre-implementation steps will further include:
-- Process of selection of the UDF or HF manager by the managing
authorities.
-- Negotiation and signature of the funding agreement with the
UDF/HF manager, including the investment strategy and a description of the rules on the assessment and control of projects
and fulfillment of the output indicators.
-- Establishment of the SPV between EIB and a national institution,
(if Option 4 is selected).
Activities which need to be realized after the
establishment of the implementation structure
Once the agreements related to the creation of first JESSICA funds have
been signed, the implementation phase starts, consisting of the following main steps:
Transfer of OP resources to the HF or UDF (depending on the implementation
Option chosen).
Following the transfer of resources to the HF or UDF, the managing
authorities can prepare a request to the EC for an interim payment from
ERDF. Managing Authorities should closely cooperate with the Ministry of
Finance in this respect.
Commencing the activity of the HF or UDF, including first investment committee meetings.
In case of the HF, the first meeting of the investment committee would
focus mainly on building upon the investment strategy and fixing the key
parameters of the process of UDF selection (as the main product of the
HF is the investment into UDFs). Specification
Similarly, in case of the UDF, the first investment committee meeting would focus mainly on defining with greater precision the financial products
to be offered by the UDF. This would be based on the contractually established investment strategy of the UDF.
Dissemination of information on the focus of the financial instrument JESSICA among the public, potential recipients of financing and potential UDF managers (if relevant).
Ensuring publicity of the JESSICA instrument and consistent information
of potential beneficiaries and implementation partners about the conditions and investment strategies of JESSICA funds would be very impor-
99 (105)
tant. Whereas the SR at present does have an instrument enabling to support refurbishment of the housing stock from the state resources, and
specialized products are also offered by the commercial banks, it will be
important to consistently make clear in what aspects the conditions of financing from the financial instrument JESSICA are different so that JESSICA products are not lost among the existing products.
Preparation of financial products, acceptance of first project applications
The necessary documentation relating to the financial products of the
HF/UDF would be prepared. Subsequently, first clients could submit their
applications for financing for the realization of their project objectives.
Time schedule
Below we illustrate the possible sequence of realization of the described
Below we illustrate
the possible
sequence
realization of the
activities, including
activities,
including
possibleofinter-linkages.
As described
the implementation
of the
possible inter-linkages. As the implementation of the financial instrument JESSICA is a complex
financial
instrument
is a complex
process,
political
manprocess, a strong
political
mandate isJESSICA
important.
Thus a general
start a strong
of the process
could
be
expected afterdate
the set
of the nextThus
Government
in July
2010.
is up
important.
a general
start
of the process could be expected
after the set up of the next Government in July 2010.
I month
II
month
III
month
IV month
V month
VII month
IX month
XI month
XIII month
Decision
about
changes in the OP
Decision about clear
financial allocations
Elaboration of an
implementation model
Selection
of
an
optimal
implementation model
Decision about the
transfer of financial
sources
Process of selection
of the HF or UDF
manager,
funding
agreement *
Transfer
sources
of
OP
Commencement
of
the activities of the
implementation
structure, definition of
financial
products,
capacity development
Informing the public
about the financial
instrument JESSICA
Acceptance of first
project applications
* The process of selection of a fund manager may take longer than envisaged here, especially in
The process
of selection
of a fund
manager
mayManaging
take longerAuthorities
than envisaged
in cases
cases where a* UDF
is being
established
directly
by the
andhere,
it isespecially
necessary
to
where a UDF is being established directly by the Managing Authorities and it is necessary to apply public
apply public procurement law or to agree a legal basis for a direct assignment of this role. It is
procurement law or to agree a legal basis for a direct assignment of this role. It is expected that a Holding
expected that Fund
a Holding
Fund with EIB as a manager could be established within a relatively short
with EIB as a manager could be established within a relatively short timeframe.
timeframe.
9. CONCLUSION AND RECOMENDATIONS
100 (105)
The most likely sources of financing for the innovative instrument JESSICA in the programming period
2010 – 2013 seem to be the ROP and OPBR. A potential allocation of 18 000 000 euro can be
9.CONCLUSION
AND RECOMENDATIONS
1. The most likely sources of financing for the innovative instrument
JESSICA in the programming period 2010 – 2013 seem to be the ROP
and OPBR. A potential allocation of 18 000 000 euro can be expected
from these OPs together. As this allocation is rather low for the starting up of a strategic instrument sustainable in the long term, we recommend to further examine the following possibilities:
-- Reallocation from other Operational programs - OP Environment and the OP Competitiveness and Economic Growth in
the period of 2010 – 2013.
-- The transfer of financial resources from the emissions sold by
the SR and/or from the expected revenues from emissions authorizations which the SR does have for sale at the moment or
those to be traded within the SR as of 2012. An optimal solution would be, if the so called “Green Schemes” would count
with the inclusion of the financial instrument JESSICA as the
focus of both schemes on energy efficiency investments is in
practice identical.
-- Utilize in the programming of the operational programs the
possibility of investment of ERDF resources into the refurbishment of the housing stock (under the recently opened 4%
window in Article 7 of Regulation 1080/2006). Furthermore, if
possible, try to utilize through JESSICA also the ERDF amounts
for housing expenditure which are already envisaged by the
ROP and OPBR in their current version (76 million) and are to
be used for interventions in housing within an integrated urban development approach. That way the support of the refurbishment of the housing stock could progress through the
financial instrument JESSICA and not through the administration of non-recurring financial contributions. We recommend
grant financing only for buildings where the need for supporting social inclusion is large and where commercial financing is
not viable.
-- Closer cooperation with the commercial banks on the activation of the financial instrument JESSICA and on a long-term
adjustment of the financial instrument in such a way that an
optimal leverage effect would be achieved. The commercial
banks represent important players on the market and it would
be appropriate if JESSICA would be reflecting also the requirements and market trends so that JESSICA funds make investJESSICA EVALUATION STUDY - FINAL REPORT SLOVAKIA
101 (105)
ments into segments which do contribute to urban development will remain underfinanced without the support from the
side of the public sector.
2. For the implementation of the financial instrument JESSICA we recommend to utilize one of the options involving a Holding Fund
(Options 3 or 4) as this enables potential inclusion of institutional investors (leverage effect), transfer of know-how and support to a broader range of urban development investments. Establishment of a HF
is also strategic from the point of view of long-term sustainability of
the JESSICA in Slovakia, the full development of which we assume
mainly with the arrival of the new programming period 2014 – 2020.
At the present it would be most important to test the readiness of
the SR to create a proper implementation structure and to commence first housing stock refurbishment projects financed on a repayable
basis. Achieving these two goals would mean accomplishing an important innovation and providing a basis for a broader utilization of
JESSICA in the future.
The only scenario where we consider that a direct creation of a UDF
by the managing authorities is worth contemplating is where the
operational program resources available for JESSICA would be clearly limited to the 18 mill euro pre-assigned for housing refurbishment
and where the decision would be taken to utilize these resources directly through the SHDF serving as a UDF. However, in that case we
would recommend that the Ministry of Finance be involved the preparation of a funding agreement between the managing authorities
and the UDF so that financial engineering know-how is preserved at
the level of the Ministry of Finance and can be applied in the future. The Ministry of Finance will play an important role also from the
point of view of its capacity as the Certification Authority. We would
also recommend under this scenario that EIB be asked for providing
technical assistance during the process of preparing the agreement
between the managing authorities and the UDF (SHDF).
3. The most important players in the process of the implementation of
JESSICA are the following:
Managing authorities – National institutions responsible for the implementation of the operational programs of structural funds. The
most important institution from this point of view would be the Ministry of Construction and Regional Development and its institutional
successors after the re-structuring of the government as anticipated
in July 2010. The managing authorities are the entities to decide on
102 (105)
whether JESSICA should be implemented and through what implementation structure. The managing authorities would also appoint
the investment committee (investment board) of the HF or UDF with
which they enter into a funding agreement. An important responsibility of the managing authorities may be also to amend the operational programs in such a way that would allow for effective utilization of the JESSICA instrument, e.g. through expanding the range
of possible projects. Subsequently, the managing authorities would
be responsible for the transfer of the OP financial contributions into
the HF or UDF created. In this processes we recommend close cooperation of the managing authorities with the Ministry of Finance,
which already has experience with the creation of innovative financial instruments (JEREMIE); this cooperation would be important also
with respect to the selection of the optimal implementation structure. In case a Holding Fund is utilized, we recommend the involvement of EIB as the manager of this HF, in line with Implementation
Options 3 and 4 analyzed above.
Financial intermediaries – national institutions such as the SHDF
and SGDB and commercial banks. In case of orientating the financial
instrument JESSICA towards refurbishment of the housing stock, we
recommend a close cooperation with the SHDF as this national institution has long-term experience with investments this area as well
as sufficient technical knowledge. We do see certain gaps within the
capacities of the SHDF to manage financial resources from the operational programs of structural funds as the SHDF has not yet implemented any project with these funds. For minimizing this threat it
would be useful to consider the possibilities of a technical assistance for the SHDF, for instance also through the EIB, in case the UDF
is established directly within SHDF. For the allocation of 18 million
pre-assigned for housing refurbishment the SHDF would be an ideal financial intermediary (UDF) and its ability to react dynamically he
proved also within the implementation of the project Governmental
Insulation Program. Commercial banks also represent important potential players and partners in a JESSICA implementation structure.
Based on our consultations we came to the conclusion that the commercial banks in the SR generally do have interest in being involved
in the implementation of the JESSICA financial instrument for financing urban development, but in case of the allocation being restricted to housing refurbishment, their interest would be low. The reason is the strong competition in this segment and also the fact that
all commercial banks are already offering similar financial products.
The financial instrument JESSICA should be, in the opinion of commercial banks, designed to present a clear competitive advantage in
comparison with other products, for instance SLOVSEFF. If in the case
103 (105)
of JESSICA it was not possible to expect a combination of loans with
subsidies or with other incentive benefits, also the banks’ interest in
cooperation on the implementation of JESSICA would be lower. The
commercial banks defined during the consultations other perspective areas of application of JESSICA for investments in urban development, for instance provision of guarantees for companies owned by
cities, refurbishment of the vehicles of city transport enterprises, refurbishment of energy infrastructure as well as refurbishment of public buildings.
Final beneficiaries – if support through JESSICA is focused on refurbishment of the housing stock, the final beneficiaries would be
mostly the apartment owners, represented by an appropriate legal
form (Association of apartment owners, representation through an
administration association etc.) If a broader scope of investments is
preferred (and resources are available), beneficiaries could include
also municipalities, municipal companies and other entities.
4. As concerns the thematic area of investment, we recommend to examine the possibilities of realizing investments through the JESSICA
mechanism also in other areas than refurbishment of the housing
stock. The latter represents an important contribution to urban development, however it is not the sole area of urban development,
which need attention and a higher level of investments. We recommend close cooperation with commercial banks on the formulation
of a final investment strategy for JESSICA in Slovakia and the definition of areas of future investments. The characteristics of the investment strategy should be such that JESSICA investments would
be „opening of doors“ of new prospective investment areas rather
than adding a “drop to an ocean” of similar financial products.
5. Also thanks to this study, all relevant institutions have a broadly positive attitude towards the JESSICA instrument and are aware of the
necessity to prove the capability of the SR to utilize structural funds
through repayable forms of financing, so that the SR would be in the
future responsibly prepared for possible changes in the rules for investing EU structural funds, mainly in the new EU programming period 2014-2020. We recommend that the Slovak Government encourages the individual managing authorities to a higher activity in
respect of introduction of innovative financial instruments within the
process of implementation of operational programs. Further effort is
required to overcome the initial lack of understanding of JESSICA on
the parts of institutions confronted with the concept of financial engineering for the first time. As we have experienced during the preparations of this study, it is still difficult to get constructive proposals
104 (105)
from various managing authorities concerning the possible adaptations of their OPs to facilitate implementation of the financial engineering instrument JESSICA.
6. Our most important recommendation is to accelerate the work on
the implementation of the financial instrument JESSICA with the allocations, which are at the present available, to decide on the optimal
implementation structure and to continuously examine the possibilities for additional allocations into JESSICA funds, so that greater
volume of operational program resources can be used in a revolving
way.
Finally, the consultants would like to express their gratitude to all
who contributed to the process of elaboration of this study and to
bringing the idea of JESSICA implementation closer to reality. Especially, we would like to acknowledge the active support of the State
Secretary Mr. Daniel Ács and representatives of the Housing Policy
and Urban Development Department of the Ministry of Construction
and Regional Development, as thanks to their involvement and support we obtained a lot of relevant information and contacts without
which the finalization of the study would be more difficult.
105 (105)

jessica evaluation study - implementing jessica instruments in

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